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CHAPTERS     IN 


POLITICAL    ECONOMY 


ALBERT    S.    BOLLES. 


New  York: 

D.     APPLETON     &     COMPANY, 

549  AND  551  Broadway. 

1874. 


Entered,  according  to  Act  of  Congress,  in  the  year  1874,  hv 

D.  APPLETON  &  COMPANY, 
In  the  Office  of  the  Librarian  of  Congress  at  Washington. 


no 

\(c\ 


ALBERT    P.    STURTEVANT,     Esq. 

THIS    VOLUME     IS    DEDICATED 


AS    A    TOKEN    OF 


The  Author's  Affectionate  Regard. 


r^ol 


Digitized  by  the  Internet  Archive 

in  2008  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/chaptersinpolitiOOboll 


PREFACE. 

The  chapters  etnbraced  in  this  work  treat  of  the 
leading  economic  questions  which  are  rife  in  our 
country.  Although  most  of  the  chapters  have  ap- 
'peared  in  magazines  during  the  past  two  years, 
yet  a  unity  will  be  found  pervading  the  work. 
An  attetnpt  has  been  made  to  handle  the  questions 
in  a  thorough  manner.,  to  dig  down  for  pri7iciples 
which  are  fundamental,  though  the  author  was 
conscious  that,  in  so  doi?ig,  the  work  would  lose 
something  of  its  interest  to  those  who  only  seek  to 
glide  over  the  surface  of  things.  If  ever  the  ques- 
tio7is  of  labor,  money,  exchange,  taxation,  and  the 
like,  are  to  receive  a  permane7it  settlement,  they 
must  be  traced  back  into  the  region  where  prejudice 
and  feeling  do  not  enter,  however  dry  and  uninvit- 
ing may  be  the  investigation. 

Norwich,   Conn.,   September,   1874. 


CONTENTS. 

PAGE. 

I. — The  Field  and  Importance  of  Political  Economy,  i 

II. — The  Payment  of  Labor,           i^ 

III. — On  the  Increase  of  Wages,           ...  28 

IV. — Effect  of  Machinery  on  Labor,  ....  41 

V. — On  the  Meaning  and  Causes  of  Value,      .         .  48 

VI. — A  Measure  of  Value, 73 

VII. — Money  and  its  Uses, 81 

VIIL — Decline  in  the  Value  of  Gold  and  Silver,  10  i 

IX. — The  Money  of  the  Future,  .  .113 

X. — The  Good  and  Evil  of  Banking,            .  T17 

XL — The  Financial  Panic  of   1873,                 ...  140 

XII. — The  Relation  of  Banks  to  Speculators,      .         .  149 

XIIL — The  Influence  of  Credit  on  Prices,            .         .  166 

XIV. — On    Legal    Interference     with    the    Loan    of 
Money,  Payment    of  Labor,  and  Contracts  of 

Corporations, 170 

XV. — The  Advantages  of  Exchange,      .         .         .         .190 

XVI. —  Taxation, -.r.r, 


I. 


THE     FIELD     AND     IMPORTANCE 
OF     POLITICAL     ECONOMY. 


In  The  Principles  of  Economical  Philosophy*  Macleod  has  given 
an  elaborate  criticism  upon  several  definitions  of  political  economy, 
and  then  offered  one  himself  which,  in  his  opinion,  "  appears  to 
state  clearly  and  distinctly  the  nature  and  extent  of  the  science, 
and  to  be  free  from  the  ambiguities  connected  with  the  words 
wealth  and  value."  At  the  risk  of  being  ambiguous,  we  shall  not 
give  a  definition  so  precise,  because  a  commoner  one  can  be  more 
easily  understood.  According  to  an  old  and  well-received  defini- 
tion, the  principles  of  political  economy  relate  to  the  production, 
distribution,  exchange,  and  consumption  of  wealth.  No  higher 
origin  is  claimed  for  these  principles  than  an  enlightened  self- 
interest.  They  are  such  as  every  man  entertains  having  regard 
solely  for  his  own  interests  from  the  most  enlightened  point  of 
view. 

Although  without  moral  foundation,  these  principles  yield  the 
same  results  in  the  production,  distribution,  exchange,  and  con- 
sumption of  wealth,  as  obedience  to  a  perfect  moral  code.  Wher- 
ever economic    and    moral  science  touch,  the    principles  of  human 

*  p.   132,  2d  ed. 

2 


1  ■     FIELD    AND     IMPORTANCE 

conduct  prescribed  by  each  are  seen  to  be  the  same.*  The 
remark  of  Dr.  Wayland  is  perfectly  true,  that  "the  principles  of 
political  economy  are  so  clearly  analogous  to  those  of  moral  phi- 
losophy, that  almost  every  question  in  the  one  may  be  argued  on 
grounds  belonging  to  the  other."! 

For  example,  moral  science  condemns  laws  made  in  restraint  of 
trade.  \  It  teaches  that  every  man  has  the  right  to  traffic  where 
he  pleases,  unfettered  by  State  lines.  The  primary  object  of  enact- 
ing such  laws  is  to  enrich  the  ^^\n  at  the  expense  of  the  many. 
The  protectionist  urges  their  enactment  for  the  public  good,  or  for 
some  reason  beyond  his  own  aggrandizement ;  the  history  of  legis- 
lation clearly  shows  that  the  prime  object  of  all  protective  laws  is 
to  benefit  particular  individuals,  or  a  class,  and  not  all.  Of  course, 
moral  science  condemns  such  legislation. 

They  are  condemned  by  political  economy  also,  which  looks  at 
them  with  the  sharp  eye  of  enlightened  selfishness.  It  sees  that 
if  the  public  good  is  the  object  of  protection,  everything  must  be 
protected  conducive  to  that  end;  and  if  this  doctrine  be  admitted, 
protective  laws  will  be  enacted  so  generally  as  to  afford  protection 
to  nothing.  If  the  principle  is  not  to  receive  a  logical  and  just 
application,  and  merely  that  a  few  things  most  needed  by  the 
public  are  to  be  protected,  their  increased  cost  to  the  consumer 
will  result  in  his  protecting  himself  by  charging  more  for  whatever 
he  sells,  so  that,  after  a  time,  the  effect  of  protective  laws  is  com- 
pletely neutralized. 

Moral  science,  then,  condemns  legal  protection  because  it  is 
wrong;  economic  science  because  it  is  impossible  to  get  protection 
by  operation  of  law.     The  conduct  of  people  in  either  case  is   the 

*■  Perry's  El.  of  Polit.  Econ.,  p.  37.  5th  ed. 

t  I'ref.  El.  of  Polit.  Econ.,  p.  4,  4th  ed. 

*  For  an   elucidation  of  the  operation  of  protective  laws,  see  chap.   15th. 


OP    POLITICAL    ECONOMY.  3 

same,  only  it  is  impelled  by  different  motives  in  one  case  than  in 
the  other. 

As  this  position  will  hardly  be  assailed  by  any  one — that  the 
principles  of  economic  and  moral  science  yield  the  same  results — 
is  it  not  better  to  transfer  the  principles  of  political  economy  from 
a  selfish  to  a  moral  basis  ?  We  favor  this  transfer  for  four  rea- 
sons. 

First,  more  persons  will  be  drawn  to  the  study  of  economic 
principles.  Now,  it  is  said,  they  are  cold  and  bloodless,  and  tend 
to  increase  human  selfishness.  If  made  a  portion  of  the  truths  of 
moral  science,  this  objection  to  them  will  disappear. 

Secondly,  in  the  classification  of  knowledge,  it  will  be  easier 
to  find  an  appropriate  place  for  political  economy.  Instead  of 
being  a  piece  of  knowledge  standing  apart  by  itself,  it  will  form  a 
subdivision  of  moral  science.  Political  economy  in  that  case  would 
constitute  that  part  of  moral  science  relating  to  the  production, 
distribution,  exchange,  and  consumption  of  wealth. 

Thirdly,  after  deriving  the  principles  from  a  moral  source,  they 
can  be  enforced  by  showing  their  harmony  with  enlightened  self- 
interest.  Thus  the  combined  power  of  morality  and  selfishness  can 
be  used  to  sustain  these  principles  by  founding  them  upon  a 
moral  basis.  We  have  previously  seen  in  the  example  of  pro- 
tective legislation,  how  the  selfish  mind,  cold,  clear,  and  enlight- 
ened, supplements  and  enforces  the  transparent  conclusions  of 
morality.  Moral  science  condemns  such  laws  because  they  are 
wrong;  economic  science  because  they  are  at  war  with  self-interest 
and  have  only  a  nominal,  and  not  a  real,  existence  after  a  period.* 

Fourthly,  political  economy  is  properly  a  subdivision  of  moral 
science,  because    the  will    operates  in  every  transaction  with  which 

*  The  insufficiency  of  enlightened  self-interest  as  a  competent  basis  for  economic    science   has 
been  ably  discussed  by  Frederic  Harrison  in  the  Fort.  Rev..,  vol.   t,  p.  356. 


4  FIELD     AND     IMPORTANCE 

economic  science  is  concerned.  This  faculty  exercises  only  moral 
functions.  If  the  principles  of  political  economy  were  immutable, 
if  the  will  were  a  stranger  in  their  production,  if  no  moral  quality 
adhered  to  them,  political  economy  would  be  entided  to  a  seat 
among  the  exact  sciences.  But  these  principles  are  not  fixed, 
because  the  human  will  is  an  element  determining  what  they 
are.  The  rules  which  have  guided  men  in  the  past  respecting 
the  acquisition  or  disposition  of  their  wealth,  are  only  hypotheses 
in  respect  to  what  they  will  do  in  the  future.  Quite  absurd  is 
the  claim  that  economic  i)rinciples  are  absolutely  fixed,  and  there- 
fore purely  scientific  principles.  Having  no  place  in  exact  literature, 
and  the  will  being  a  part  of  the  machinery  by  which  economic 
principles  are  created,  they  ought  to  be  relegated  to  the  domain 
of  moral    science.* 

If  the  principles  of  political  economy  are  transferred  from  a  sel- 
fish to  a  moral  basis,  the  method  of  searching  for  them  is  not 
changed.  Economic  principles  are  still  the  fruit  of  induction. 
And  it  is  worthy  of  note  how  extensively  employed  is  the  induc- 
tive method  in  political  economy.  Adam  Smith,  it  is  true,  did 
not  write  an  inductive  treatise.  His  Wealth  of  Nations  is  a  great 
landmark  in  the  history  of  thought,  but  its  success  is  due  to  the 
fact  that  he  put  ten  years  of  patient  labor  upon  the  work,  com- 
bining in  the  happiest  manner  a  philosophic  insight  with  a  knowl- 
edge of  practical  life,  deducing  therefrom  principles  which  have 
found  universal  acceptance.  It  is  easier  to  dream  and  speculate 
than  to  burrow  amid  a  great  mass  of  facts;  yet,  as  the  gold  in  the 

*  Jevons,  in  his  Theoi-y  of  Polit.  Econ.,  has  united  moral  and  economic  science,  making 
pleasure  the  end,  and  declaring  that  "the  object  of  economy  is  to  maximise  happiness  by  pur- 
chasing pleasure,  as  it  were,  at  the  lowest  cost  of  pain"  (p.  27).  As  Jevons  is  a  utilitarian,  of 
course  pleasure  is  the  highest  end  for  man  according  to  his  philosophy,  though  he  gives  a 
wide-  interpretation  to  the  term  than  his  master,  Bentham,  whom  he  so  much  admires.  See 
pp.  27-32. 


OF     POLITICAL    ECONOMY.  5 

earth  can  be  found  only  by  toilsome  mining,  so  the  gold  of  eco- 
nomic truth  is  hid  in  great  masses  of  facts  which  must  be  dug 
over  to  find  it.  Never  did  finer  logicians  or  acuter  reasoners 
exist  than  the  schoolmen;  never  did  a  class  of  men  commit  greater 
mistakes.  These  followed  from  wrong  premises.  Political  economy 
has  followed  too  much  a  similar  method.  This  is  one  reason  why 
it  has  failed  to  convert  men.  It  has  been  too  speculative.*  The 
change  of  method  among  economists  in  this  respect  is  remarkable. 
Fifty  years  since,  Thomas  Tooke  applied  the  inductive  method  in 
his  History  of  Prices  with  enduring  success.  Later,  Richard  Jones 
applied  it  to  the  subject  of  Rent ;  similarly,  Edwin  Chadwick  in 
his  investigations  into  the  questions  of  Factory  and  Infantile 
Labor,  and  Sanitary  and  Poor-Law  Legislation.  In  1867,  Rogers 
published  his  work  upon  the  Agricultural  Prices  and  Wages  in 
England  during  the  Twelfth  and  Thirteenth  Centuries,  a  monu- 
ment of  patient  investigation,  a  work  which  gave  a  new  rendering 
of  the  social  and  economic  history  of  England  for  the  period  it 
covered,  "enabling  us  to  see,"  says  Newmarch,!  "in  detail,  how 
far-reaching  and  potent  were  wages,  prices,  and  pestilences  in  mod- 
ifying from  top  to  bottom  the  coherence  of  the  EngHsh  polity, 
and  the  power  of  our  sovereign  lord  the  king,  under  the  early 
Plantagenets." 

Other  economic  works  might  be  spoken  of,  prepared  in  a  simi- 
lar way,  Dudley  Baxter's  books  upon  National  Income,  and  Tax- 
ation of  the  United  Kingdom,  and  Leoni  Levi's  History  of  British 
Commerce,  are  examples.  As  for  France,  she  has  been  noted  for 
her  economists    who    have    burrowed    and    lived  among    the    facts. 

*  "  Half,  and  more  than  half,  of  the  fallacies  into  which  persons  who  have  handled  this  subject 
have  fallen,  are  the  direct  outcome  of  purely  abstract  speculation."  Rogers  in  preface  to  his 
edition  oi  Sim'th's  Wealth  of  Nations,  p.  41. 

t  Address  before  the  British  Social  Science  Association,  1871. 


6  FIELD    AND     IMPORTANCE 

Chevalier,  in  all  his  works,  has  kept  close  to  the  inductive 
method.  So  has  M.  de  Lavergne  when  treating  upon  the  moral 
economy  of  his  own  and  other  countries.  M.  Levasseur  and  M. 
Le  Play  have  considered  the  claims  of  the  working  classes  of 
France  in  a  similar  manner.  The  same  may  be  said  of  M.  Jules 
Simon. 

Of  the  political  economists  in  our  own  country  following  this 
method,  not  so  much  can  be  said.  The  most  prominent  example 
who  has  addressed  himself  to  the  mastery  of  facts  as  the  founda- 
tion of  his  subsequent  reasonings,  is  David  A.  Wells.  In  his 
reports  to  the  National  Government  and  to  the  State  of  New 
York,  and  in  other  papers,  he  has  adhered  rigidly  to  the  induc- 
tive method.  For  many  years  pursuing  physical  science,  he  has 
employed  its  methods  in  finding  out  the  principles  of  political 
economy.  His  results  have,  in  some  instances,  been  as  unexpected 
to  himself  as  they  were  starding  to  the  public.  They  are  none 
the  less  true,  however,  or  less  likely  of  being  accepted  in  the  end. 
The  National  and  State  Governments  are  learning  the  value  of 
this  method,  for  they  are  appointing  commissions  and  requiring 
investigation  and  reports  upon  many  subjects  lying  in  the  province 
of  political  economy.  Never  was  a  more  inviting  field  of  investi- 
gation open  to  the  student  of  economic  science  than  our  own 
country,  nor  one  where  patient,  honest  investigation  was  more 
needed.  The  facts  are  lying  around  in  the  greatest  profusion, 
while  the  honest  and  accurate  gatherers  are  few. 

Although  the  true  principles  of  political  economy  are  ascertained 
by  induction,  and  all  others  are  only  guessed,  yet  none  are  hard, 
fixed  laws  that  never  change  in  their  occurrence,  like  the  move- 
ments of  the  sun.  On  the  other  hand,  the  element  of  human  free- 
dom, as  we  have   previously  remarked,  enters    into    their    composi- 


OF     POLITICAL    ECONOMY.  7 

tion,  preventing  us  from  determining  their  absolute  truth,  as  we 
can  the  laws  of  physical  science.  Macleod,  in  his  Principles  of 
Economical  Philosophy*  has  labored  mdustriously,  and  with  great 
ability,  to  bring  economic  science  within  the  domain  of  physical 
science,  but  we  cannot  regard  his  attempt  as  successful.  Comte 
and  John  Stuart  Mill  have  comprehended  the  nature  of  eco- 
nomic principles  more  perfectly.  They  admit  the  play  of  the  human 
will ;  hence  the  Frenchman  was  consistent  in  rejecting  political 
economy  from  his  scheme  of  positive  philosophy.  One  of  his  dis- 
ciples,t  in  vindicating  his  master,  has  very  well  said  :  "  So  far  as 
physical  conditions  go,  and  up  to  a  point  where  moral  conditions 
begin,  strict  scientific  laws  can  be  established.  .  .  .  Directly 
the  data  of  the  study  become  affected  by  moral  conditions,  the 
conclusions  of  the  economist  as  such  cease  to  be  scientific  laws, 
and  are  only  hypotheses."  For  this  reason,  therefore,  political 
economy  can  never  become  an  exact  science.  However  far  we 
may  carry  our  inductions,  a  large  element  of  variation  must  be 
allowed  for  the  action  of  the  will.  As  the  land  surveyor  can 
never  determine  with  exactness  surface  and  direction  on  account 
of  variation  of  the  needle,  so  the  economist  can  never  discover  by 
the  most  patient  study  of  facts,  any  unalterable  laws  of  economic 
science,  because  of  the  infinite  variations  in  the  will  of  men.  The 
farthest  he  can  go  is  to  ascertain  how  men  have  acted  under  for- 
mer conditions,  and  form  the  hypothesis  that,  under  like  condi- 
tions, similar  actions  will  be  produced.  \ 

As  the  principles  of  political  economy  are  ascertained   by  induc- 

*  Chap.   I.      t  Frederic  Harrison,  Fort.  Review,  vol.  i,  p.  369. 

*  David  Sv.me  has  declared  that  the  "inductive  method  is  alone  applicable  to  the  investiga- 
tion of  economic  science,  and  that  we  shall  never  be  able  to  make  any  solid  progress  so  long 
as  we  continue  to  follow  the  A  priori  method."  West.  Rev.,  vol.  95,  p.  100.  On  same  subject, 
see  Prof.  Cairnes'  Cliaracter  aiid  Logical  Metlwd  0/ Polit.  Econ.,  Lee.  11. 


8  FIELD    AND     IMPORTANCE 

tion,  any  one  capable  of  making  an  induction  can  find  them  out. 
A  knowledge  of  economic  principles  involved  in  a  particular  pur- 
suit is  not  necessarily  limited  to  those  engaged  in  that  business. 
The  sole  advantage  one  man  has  over  another  of  equal  ability  is 
in  a  knowledge  of  facts,  out  of  which  inductions  spring. 

Thus  the  charge,  that  only  business  men,  practical  men,  can 
understand  the  principles  of  political  economy,  is  conclusively 
refuted.  The  charge  contains  this  basis  of  truth  and  no  more — 
that  business  men  often  know  more  facts  concerning  their  business 
than  outsiders;  hence  they  are  more  capable  of  forming  correct 
conclusions. 

The  history  of  political  economy  attests  the  truth  of  this  asser- 
tion. For,  who  are  the  most  successful  cultivators  of  the  science? 
Who  have  wrought  out  those  principles  which  most  persons  are 
willing  to  admit  as  true  and  of  great  importance  ?  Are  they  the 
discovery  of  practical  men  ?  By  no  means.  The  great  lights  in 
economic  science,  from  the  day  of  Adam  Smith  to  this,  have  not 
been  practical  men.*  Political  economists  have  walked  with  the 
man  of  business,  have  gleaned  from  him  all  that  he  knew,  and, 
not  content  with  exhausting  one  storehouse  of  experience,  have 
exhausted  others,  dug  in  rare  and  rich  mines  of  which  practical 
men  had  no  knowledge  perhaps,  or  no  time  or  inchnation  to  ex- 
plore. As  the  reader  of  the  description  of  a  battle  may  acquire  a 
more  perfect  knowledge  of  it  than  a  participator  therein,  because, 
as  an  eye-witness,  the  latter  knows  only  what  happened  immedi- 
ately around  him,  so  the  pohtical  economist  may  acquire  a  wider 
knowledge  of   economic  principles    governing  a  particular   business 

*  "  In  every  country  in  which  it  has  been  successfully  cultivated,  most  of  the  contributions  n 
it  of  any  value  have  been  made  by  writers  who  were  not  of  the  business  world,  but  surveyed 
Its  operations  from  a  distance;  men  for  whose  opinions  on  business  matters  few  merchants  or 
manut'acturers  would  have  given  five  cents."      The  Nation,  vol.  2,  p.  146. 


OF     POLITICAL     ECONOMY.  9 

even,  than  a  person  who  has  given  to  it  the  attention  of  a  life- 
time. 

A  poHtical  economist  can  see  economic  principles  more  clearly 
because  his  view  is  not  mystified  by  pecuniary  interest.  His  judg- 
ments are  unclouded  by  prejudice;  undisturbed  by  the  thought  of 
gain  or  loss.  We  need  not  indulge  in  any  platitudes  as  to  the 
unconscious  warpings  of  opinions  and  beliefs  by  interest  and 
desire;   the  fact  is  common  to  all. 

A  conspicuous  illustration  of  the  eminent  service  sometimes  ren- 
dered by  the  theoretical  economist,  is  the  creation  of  the  National 
banking  system.  This  was  the  work  of  the  Rev.  John  McVickar, 
Professor  of  Political  Economy  in  Columbia  College.  In  1827,  he 
wrote  a  letter  to  a  member  of  the  legislature  of  the  State  of  New 
York,  entitled  Hints  on  Banking,  in  which  he  developed  the  sys- 
tem now  in  practice.  This  discovery  excited  the  admiration  of  an 
eminent  banker,  John  E.  Williams,  President  of  the  Metropol- 
itan Bank  of  New  York,  who  has  remarked  that  "  to  a  practical 
man  of  business — an  every-day  banker — it  seems  wonderful  that  a 
scholar,  investigating  questions  in  political  economy,  on  purely 
scientific  principles,  should  be  able  to  see  not  only  the  practical 
workings  of  existing  laws,  and  understand  the  indissoluble  relations 
of  money  and  trade,  but  should  be  also  able  to  foresee  and  fore- 
tell what  changes  were  necessary  to  produce  the  highest  pfosperity 
and  secure  the  greatest  safety  to  the  community."  * 

Not  infrequently  the  principles  of  political  economy  are  declared 
to  be  mere  theories.  Some  of  them  are  nothing  more.  The  dif- 
ference, however,  between  theoretical  principles,  and  those  derived 
from  experience,  is  clear  enough.  Scientists  are  continually  mis- 
taking principles  for  theories,  regarding  things  as  proved  which  are 

*  Old  and  New    Mag.,  vol.  8,  p.  590. 


lO  FIELD     AND     IMPORTANCE 

not,  but  only  asserted  or  believed.  That  theories  are  useless,  as 
some  contend,  we  deny.  Nay,  they  are  absolutely  necessary  ;  no 
man  can  conduct  his  business  without  them.  ■'■'•  What  is  practice 
without  theory,"  enquires  an  eminent  French  economist,*  "  but 
the  employment  of  means  without  knowing  how  or  why  they  act." 
To  which  the  words  of  Prof.  Price t  may  be  added.  "It  is  a 
mistake,  though  a  very  common  one,  to  suppose  that  practical 
men,  as  they  are  called,  are  destitute  of  theory.  The  exact  reverse 
of  this  statement  is  true.  Practical  men  swarm  with  theories,  none 
more  so."  Theories  are  well  enough,|  only  they  must  be  regarded 
as  such  ;  no  harm  is  done  to  economic  science  in  including  both, 
if  the  separation  of  principle  from  theory  be  clearly  made. 

The  flaw  with  some  of  the  principles  of  political  economy,  like 
many  of  the  inductions  of  science,  is  that  they  rest  upon  insuffi- 
cient foundations.  A  few  facts  are  gathered,  and  from  them  a 
principle  is  deduced,  which,  indeed,  may  be  correct,  yet  which 
would  give  way  to  another  principle,  perhaps,  were  a  wider  induc- 
tion made.  Every  result  is  produced  by  several  causes,  nevertheless 
we  are  constantly  blundering  by  satisfying  ourselves  with  finding  a 
single  cause,  and  so  look  no  farther. 

To  some  it  may  seem  a  waste  of  time  and  space  to  say  any- 
thing concerning  the  importance  of  knowing  the  principles  of 
political  economy.  Yet  there  are  peculiar  reasons  for  saying  some- 
thing on  this  point.  The  extraordinary  prosperity  that  has  visited 
our  country  has  spread  a  kind  of  poetic  haze  over  the  whole 
machinery    of   society,  and    led    us    to  regard    all    inquiry    into  its 

*  Sav.    Treat,   on   Polit.   Ecoii.,   Intro.,  p.  24,   4th    Am.    ed.      t  Princ.  0/  Cttrrency,  p.   i. 

X  Sir  William  Hamilton  says:  "  Theory  is  dependent  on  practice;  practice  must  have 
preceded  theory;  for  theory  being  a  generalization  of  the  principles  on  which  practice  proceeds, 
these  must  originally  have  been  taken  out  of,  or  abstracted  from,  practice."  Lecture  on  Met., 
p.   120,  Am.  ed. 


OF    POLITICAL    ECONOMY.  II 

working  as  an  idle  speculation.  Before  the  enactment  of  the  great 
tragedy  between  the  North  and  South,  there  were  but  few  ques- 
tions relating  to  the  administration  of  the  government  involving 
the  application  of  any  principles  of  political  economy.  The 
great  debates  in  Congress  were  upon  constitutional  law,  internal 
improvements,  slavery,  and  like  questions.  With  the  breaking 
out  of  war,  these  questions  passed  away.  The  country  had  gone 
through  the  formative  period  of  finding  out  the  meaning  and  scope 
of  the  organic  law.  Congress  was  confronted  with  economic  ques- 
tions. With  these  it  was  ill  prepared  to  deal.  It  had  only  the 
scantiest  knowledge  of  them,  except  the  question  of  taxing  im- 
portations. The  Cofign'ssional  Globe  is  the  enduring  monument 
of  the  ignorance  displayed  by  members  of  congress  upon  questions 
involving  economic  principles.* 

To  what  new  economic  conditions  did  the  war  give  rise  ?  It 
created  a  great  debt,  the  interest  and  principal  of  which  must  be 
provided  for  and  paid.  A  national  currency  and  system  of  bank- 
ing have  been  created.  How  our  country  blundered  in  raising 
money  to  maintain  the  war,  and  spent  it ;  how  the  strife  might 
have  been  carried  on  and  the  debt  been  less  than  half  it  is,  are 
mistakes  which  we  shall  not  recall. 

Unquestionably  our  country  has  suffered  most  fearfully  from  an 
ignorance  of,  or  failure  to  apply,  some  of  the  most  familiar  prin- 
ciples of  political  economy.    One  of  its  most  distinguished  teachers, 

*  We  shall  give  a  couple  of  fair  specimens.  "All  governments  fix  the  value  of  gold  and  sil- 
ver; and  without  their  S'^vernment  stamp  gold  and  silver  would  be  a  simple  commodity,  like 
other  things  having  intrinsic  value.  Some  governments  fix  the  value  of  coin  higher,  and  some 
lower;  just  as  each  for  itself  chooses  to  determine." — E.  G.  Spauldinc;  speech  on  Demand- 
Note  Bill,  January  28,  1862. 

"This  currency."  referring  to  demand  notes  or  legal  tenders,  "can  be  converted  in  such  a 
manner  as  to  yield  six  per  cent  mterest  on  its  par  value ;  it  can  never  greatly  depreciate, 
because  the  moment  the  capitalist  holding  it  sees  any  evidence  of  its  depreciation,  he  will  con- 
vert it  into  the  bonds  bearing  interest,  giving  him  a  permanent  income.  Thus  it  secures  itself 
against  over-circulation." — Speech  0/  Samuel  Hooper  on  same  subject. 


12  FIELD     AND     IMPORTANCE 

Amasa  Walker,  clearly  set  forth  in  a  congressional  speech,  during 
the  early  part  of  the  war,  how  it  might  be  carried  on  at  less 
than  half  the  expense  which  Congress  was  likely  to  incur,  by 
sticking  to  specie  payments,  instead  of  abandoning  them  for  an 
irredeemable  paper  currency.  His  words,  deemed  foolish  then, 
have  long  since  borne  evidence  of  their  wisdom  and  truth.  The 
issue  of  an  irredeemable  currency,  so  pointedly  condemned  by  him 
and  other  economists,  has  wrought  a  thousand  curses  to  our  coun- 
try, from  which  we  are  suffering  to-day  and  are  to  suffer  for  years 
to  come. 

Letting  the  past  go,  many  of  our  politicians  do  not  yet  under- 
stand the  principles  of  political  economy,  the  application  of  which 
are  needed  to  settle  questions  confronting  the  nation.  For  exam- 
ple, there  are  questions  of  taxation  both  upon  imports  and  prop- 
erty at  home.  The  principles  which  should  govern  in  these 
matters,  some  of  our  politicians  are  as  ignorant  of  as  the  grandest 
truths  in  astronomy.  The  National  banking  s)stem,  the  currency, 
free  banking,  specie  payments,  redemption  of  legal-tender  notes — 
are  all  subjects  within  the  domain  of  political  economy,  whose 
principles  must  be  mastered  if  these  matters  are  to  receive  a 
rational  settlement.  The  views  entertained  upon  these  questions, 
the  nonsense  and  ignorance  displayed  by  Congress  when  grappling 
with  them,  would  be  laughable  were  the  results  not  so  sad  and  so 
disastrous  to  the  people. 

Every  session  of  Congress   discloses  its  inability  to  grapple    with 
economic  questions.*    When  matters  of  foreign  policy  are  discussed, 

*  Perhaps  our  congressmen  may  profit  by  learning  what  Burke  thought  of  political  economy: 
"  If  1  had  not  deemed  it  of  some  value,  I  should  not  have  made  political  economy  an  object 
of  my  humble  studies  from  my  very  early  youth  to  near  the  end  of  my  service  in  Parliament, 
even  before  (at  least  to  any  knowledge  of  mine)  it  had  employed  the  thoughts  of  speculative 
men  in  other  parts  of  Europe.  At  that  time  it  was  still  in  its  infancy  in  England,  where,  in 
the  last  century,  it  had  its  origin.     Great  and  learned  men  thought  my  studies  were  not  wholly 


OF     POLITICAL    ECONOMY.  13 

or  treatment  of  the  Indians,  or  internal  improvements,  or,  in  the 
olden  time,  when  dealing  with  slavery,  a  knowledge  and  mastery 
of  the  several  subjects  is  evinced,  although  not  all  reached  similar 
conclusions.  This  cannot  be  said  of  the  senators  and  representa- 
tives in  Congress  in  respect  to  economic  questions,  excepting  a 
member  who  appears  occasionally,  for  a  brief  season,  within  the 
national  halls. 

It  is  desirable,  therefore,  for  every  person  proposing  to  serve  his 
country  in  a  public  capacity  to  understand  the  principles  of  politi- 
cal economy,  for  they  apply  to  the  most  important  questions  of 
national  legislation.*  No  one  will  dispute  how  the  character  of 
national  legislation  has  been  changed  by  the  war,  and  that  finan- 
cial measures  and  taxation  are  the  most  conspicuous  questions 
upon  which  Congress  legislates. 

Again,  the  principles  of  political  economy  are  growing  in  im- 
portance to  the  individual  in  his  business  relations.  Consider  the 
relations  of  capital  and  labor.  How  this  question  looms  up  before 
the  whole  world.  It  is  one  of  the  mightiest  questions  of  the  age. 
It  has  assumed  a  magnitude  surpassed  by  no  other.  It  is  con- 
vulsing the  business  of  manufacturing  and  other  pursuits.  For 
years  and  years  this  question  will  hang  like  a  mighty  cloud  over 
the  people.  Is  it  not  desirable  to  find  out  all  that  can  be  known 
concerning  the  relation  of  the  capitalist  and  laborer  ?  Yet  who 
has  investigated  this  question  most  profoundly  ?  The  political 
economist.      The    question    lies    within    the    domain    of  economic 

thrown  away,  and  deigned  to  communicate  with  me  now  and  then  on  some  particulars  of  their 
immortal  works.  Something  of  these  studies  may  appear  incidentally  in  some  of  the  earliest 
things  I  published.  The  House  has  been  witness  Vi  their  effect,  and  has  profited  of  them,  more 
or  less,  for  above  eight-and-twenty  years." — Letter  to  a  Xoble  Lord  on  the  attacks  upon  his 
pension  ;  Burke's  works,  vol.  5,  /.   192. 

*  Said  CoBDEN  to  the  House  of  Commons,  when  addressing  them  on  the  com  laws:  ''It 
may  be  material  for  you  to  get  right  notions  of  political  economy  ;  questions  of  that  kind  will 
form  a  great  part  of  the  world's  legislation  for  a  long  time  to  come." — Speeches,  vol.  i,  /.  384. 


14  FIELD    AND     IMPORTANCE     OF     POLITICAL    ECONOMY. 

science.     And  it  has  been  patiently  and  thoroughly  investigated  by 
the  economist  in  all  its  phases.* 

The  same  is  true  of  other  questions.  Take  the  question  of 
restrictive  laws  upon  foreign  importations,  for  example.  Shall  the 
policy  of  the  government  be  continued?  Is  it  for  the  advantage  of 
any  one ;  if  so,  whom  ?  Are  the  laboring  classes  benefited  by  it  ? 
Is  the  National  banking  system  a  good  one  ?  Do  we  need  more 
currency  ?  These,  and  a  host  of  similar  questions,  fall  within  the 
range  ot  political  economy,  and  have  been  more  carefully  investi- 
gated by  economists  than  by  empirics,  who,  possessing  a  little  knowl- 
edge and  having  achieved  fortunes,  find  it  hard  to  believe  that  any 
one  has  anything  to  tell  them  upon  trade,  finance  or  commerce. t 

For  these  special  reasons,  the  principles  of  political  economy 
have  a  value  to  the  statesman  and  man  of  business  hitherto  un- 
known or  denied.f  It  is  gratifying  to  know  that  a  knowledge  of 
these  principles  is  rapidly  widening.  The  issuing  of  eleven  editions 
of  Prof.  Perry's  Ele)nents  of  Political  Economy  within  so  short  a 
period,  is  proof  that  the  people  are  awaking  out  of  sleep  and 
coming  to  believe  that  ignorance  of  the  principles  of  political  econ- 
omy— which  has  cost  us  so  much  as  a  nation  and  as  individuals 
— is  not  bliss  pure  and  unalloyed.  A  little  wisdom  is  to  be  pre- 
ferred, and  the  streaks  of  light  beginning  to  be  seen  in  Congress 
we  trust  will  grow  in  power  and  magnitude  until  that  body  pos- 
sesses the  knowledge  necessary  to  discuss  and  settle  wisely  the 
great  economic  questions  which  involve  the  prosperity  and  happi- 
ness of  the  republic. 

*  If  the  remark  of  Cobden  be  true — that  "the  principles  of  political  economy  have  elevated 
the  working  class  above  the  place  they  ever  filled  before " — should  they  not  seek  to  master 
these  principles  ?  — Speeches,  vol.  2.  p.  373. 

t  The  advantages  to  be  derived  by  the  Christian  ministry  from  the  study  of  political  econ- 
omy are  admirably  stated  by  Prof   Boardman  in  the  Bib.   Sacra,  vol.  23,  p.  73. 

*  The  reasons  why  political  economy  has  not  been  cultivated  in  America,  are  concisely  given 
in  The  Nation,  vol.  2,  p.  255. 


11. 


THE     PAYMENT     OF     LABOR, 


This  question  has  attracted  more  attention  in  Europe,  especi- 
ally in  England,  than  here;  for  there  laborers  have  been  paid  less 
and  have  suffered  more,  and  they  have  oftener  resorted  to  strikes 
and  other  rude  methods  to  increase  their  wages.  Yet  the  wave  of 
discontent  has  reached  our  shore,  and  is  breaking,  with  more  or  less 
fury,  over  every  part  of  the  land.  Not  a  more  important  question 
in  political  economy  calls  for  settlement ;  not  one  is  likely  to  give 
rise  to  graver  difficulties  and  greater  suffering  before  a  settlement 
is  reached. 

The  contest  between  capitalist  and  laborer  is  a  contest  between 
present  and  accumulated  labor.  Capital  is  labor  saved,  nothing 
more.*  The  contest  is  between  him  who  has  saved  his  labor,  or 
inherited  it,  and  him  who  has  less.  It  is  a  contest  of  the  laborer 
with  the  laborer,  after  all. 

There  is  a  very  gradual  shading  between  the  capitalist  having 
many  millions,  and  the  laborer  having  nothing  except  his  brains 
and  limbs.  One  man  has  a  vast  fortune,  another  a  hundred 
thousand  dollars,  another  a  quarter  of  that  sum,  another  his  form, 
another  his  brains,  one  a  store  of  goods,  one  a.  set  of  tools, 
another  a  shovel.      Thus  the  gradations   from  the  capitalist  to    the 

*  Technically,  labor  is  exertion   demanding   something  for   itself  in    exchange. — Perry,  p.  iza. 


l6  THE     PAYMENT    OF     LABOR.  • 

laborer  shade  off  almost  imperceptibly,  and  it  is  not  easy  to  class- 
ify all  persons. 

As  to  the  true  relation  between  capitalist  and  laborer,  there  is 
scarce  a  division  of  opinion.  Says  Prof  Perry  :*  "  There  is  no 
sense  or  reason  in  the  common  jealousy  of  workmen  towards  em- 
ployers. There  is  no  real  antagonism  between  them.  Their 
interests  lie  along  the  same  line.  They  are  partners  in  the  same 
concern."  And  this  is  the  common  language  of  all  who  have 
investigated  the  subject. 

It  may  be  very  easily  shown  that  the  true  interests  of  labor  and 
capital  are  identical.  Without  the  employment  of  capital,  laborers 
in  many  cases  could  not  live.  An  accumulation  of  capital  is 
necessary  to  undertake  most  of  the  enterprises  of  the  world. 
While  a  machine  is  being  made,  a  railroad  built,  a  crop  raised, 
capital  is  required  upon  which  to  subsist.  Without  capital,  people 
would  live  from  hand  to  mouth,  according  to  the  common  saying; 
that  is,  would  return  to  their  original  state,  and  live  by  tishing, 
hunting,  the  fruits  of  the  earth,  and  the  like.  It  is  by  saving, 
accumulating  capital,  that  the  world  has  been  able  to  make  such 
progress — to  build  factories  and  railroads,  and  undertake  thousands 
of  enterprises,  the  returns  upon  which,  though  sure  to  come,  may 
be  long  delayed. 

The  capitalist  has  the  means  to  accomplish  these  things,  if 
united  with  labor.  He  can  do  nothing  without  it.  To  build  a 
railroad,  labor  is  just  as  essential  as  capital.  Both  are  indispensa- 
ble elements.  Hence  the  theoretical  truth  that  they  operate  in 
perfect  harmony.  Were  the  rich  man  totally  unable  to  unite  his 
capital  with  labor,  he  would  become  a  beggar;  were  the  work- 
man   unable    to    get    employment    from    the    capitalist,    he    would 

*  El.  of  Polit.   EcoH.,  p.   148,  5th  ed. 


THE     PAYMENT    OF     LABOR.  1 7 

Starve.  The  interests  of  the  two  are,  therefore,  inseparably  united; 
their  need  of  each  other  is  equally  great. 

What  is  their  actual  position  ?  This  is  not  a  pleasant  investiga- 
tion to  make.  We  shall  present  a  dark  picture  of  the  motives 
ruling  the  greatest  portion  of  mankind.  Yet  let  it  be  remembered, 
that  our  investigation  is  general;  it  does  not  apply  to  every  indi- 
vidual case.  There  are  unselfish  employers  and  laborers.  We  seek 
to  analyze  the  motives  which  generally  actuate  the  two  classes. 
What  are  these  ? 

The  laborer  is  determined  to  get  the  highest  wages  for  the  least 
work;  the  employer  the  most  work  for  the  least  wages.*  The 
motives  of  the  two  classes  are  the  same.  The  question  of  paying 
or  receiving  a  reasonable  compensation  is  not  the  one  determining 
the  question.  How  much  can  I  get?  how  little  can  I  pay?  these 
are  the  questions  asked. 

The  trades-unions  of  Great  Britain  have  declared  this  again 
and  again.  In  the  Edinburgh  Revieiv,\  their  object  is  clearly  set 
forth :  " '  The  final  end '  of  the  trades-unions  is  '  to  raise  to  the 
highest  practical  point  the  rate  of  wages,'  and  it  is  their  maxim 
that  no  work  should  be  done  heartily;  to  'evade'  work  and  to  'loi- 
ter' at  work  are  rules;  'he  who  is  most  skillful  in  these  arts  is  the 
greatest  benefactor  to  his  order ; '  '  the  sluggard,  according  to  the 
standard  of  the  unions,  must  be  the  model  workman ; '  the  union- 
ists have  plans  for  making  work  that  is  useless  to  their  employers; 
they,  in  some  cases,  oppose  the  use  of  machinery,  and  compel 
the  public   to    make    use    of  inferior    articles — for    example,    hand- 

*  Burke  has  said:  "There  is  an  implied  contract,  much  stronger  than  any  instrument  or 
article  of  agreement,  between  the  laborer  in  any  occupation  and  his  employer — that  the  labor, 
so  far  as  that  labor  is  con-erned,  shall  be  sufficient  to  pay  to  the  employer  a  profit  on  his  cap- 
ital and  a  compensation  for  his  risk ;  in  a  word,  that  the  labor  shall  produce  an  advantage 
equal  to  the  payment." — Thoughts  and  Details  on  Scarcity,  vol.  5,    p.   137. 

t  July  No.,  1868. 


15  THE     PAYMENT     OF     LABOR. 

made  bricks:  the  Leeds  bricklayers  have  a  rule  against  one  man 
carrying  more  at  a  time  than  '  the  ridiculously  small  number  of 
eight  bricks';  walking  slowly  to  work,  so  as  to  consume  as  much 
as  possible  of  the  master's  time,  has  been  acted  on  as  a  rule  ;  the 
trades-unions  aim  at  '  making  as  much  work  as  possible,'  '  by  ren- 
dering the  labor  of  each  less  efficient ; '  the  union  is,  in  some 
cases,  so  '  omnipotent  over  masters,'  that  '  the  industrial  machine 
is  turned  topsy-turvy ; '  in  cases  of  outrage,  employers  are  afraid 
to  .prosecute,  and  a  witness  who  appears  in  court  against  a  trades- 
union,    '  must  be  helped  to  emigrate.'  " 

This  is,  indeed,  an  extreme  view.  But  it  is  the  view  of  thous. 
ands.  The  workman  is  quite  as  selfish  a  being  as  his  employer; 
we  cannot  credit  him  with  having  better  motives. 

What  can  the  capitalist  say  for  himself?  Is  he  less  selfish  ? 
Does  he  love  his  money  less  than  those  whom  he  employs  ?  Let 
the  long  ecord,  especially  of  British  industry,  answer.  The  capi- 
talist has  had  the  advantage  of  his  workman,  and  he  has  rarely 
failed  to  use  it.  It  is  a  hard  truth  that  the  world  is  forever  trying 
to  get  advantage  of  each  other.  If  all  laborers  were  willing  to 
work  for  a  reasonable,  or  just  price,  and  all  capitalists  were  willing 
to  pay  it ;  if  every  exchanger  were  willing  to  buy  and  sell  accord- 
mg  to  the  same  beautiful  rule — the  world  would  move  on  in  per- 
fect harmony.  Unhappily,  this  is  not  the  case.  Every  man  seeks 
to  get  the  most  he  can  for  what  he  sells,  and  pay  as  little  as  pos- 
sible for  what  he  buys.  This  is  the  law  of  the  world.  In  order 
to  carry  out  the  law,  all  are  forever  inventing  methods  by  which 
they  can  overreach  each  other,  while  the  overreached  are  continu- 
ally applying  counter-protectives. 

If  a  restrictive  tariff  law  is  enacted  by  which  a  railroad  com- 
pany pays  twenty-five  per  cent,  more  for  its  rails,  it  makes  up  the 


THE     PAYMENT    OF     LABOR.  I9 

advantage  thus  accruing  to  the  home  manufacturer  by  raising  the 
price  of  freights.*  If  a  man  intends  to  buy  anything,  he  hides  his 
real  intentions  from  the  seller  if  he  can.  Why?  Because  he  fears 
the  seller  will  take  advantage  of  the  buyer's  situation  to  raise  the 
price.  So  men  hide  their  real  purposes,  pretending  not  to  want 
very  badly,  although  their  wants  may  be  great;  pretending  to  be 
not  very  desirous  of  selling,  although  wishing  to  sell  even  at  a 
loss ;  and  thus  deceptions  are  employed ;  each  afraid  to  tell  the 
honest  story  of  his  condition,  and  trust  his  fellow,  because  he 
knows  that,  generally,  men  will  take  advantage  of  each  other  if 
they  can.  The  capitalist  is  like  the  rest,  and,  unfortunately  for  the 
laboring  class,  he  has  an  advantage  over  them  which  it  is  difficult 
for  them  to  overcome.  He  can  live  if  all  his  capital  is  not  em- 
ployed in  reproduction ;  their  labor  will  not  keep,  and,  if  they  are 
not    employed,  they  perish. 

For  example :  A  owns  a  factory  run  by  a  hundred  hands.  They 
demand  higher  wages  and  refuse  to  work  until  they  be  given.  But 
the  owner  says :  "  No,  I  will  stop  my  mill  first."  He  has  prop- 
erty besides,  and  can  live  upon  that  until  it  is  exhausted;  perhaps 
he  has  enough  for  his  support  always.  But  if  the  laborer  does 
not  work,  he  will  starve.  It  is  clear  enough,  then,  that  A  holds 
his  help  in  the  hollow  of  his  hand  and  can  squeeze  them  as  hard 
as  he  pleases.  This  is  the  fact,  and  every  true  observer  will  say 
so.  Admitting  the  truth  of  all  the  beautiful  theorizing  about  the 
necessary  marriage  of  labor  and  capital  in  order  to  bring  forth 
fruits  for  both,  capital  often  has  a  decided  advantage. 

The  laborer  sees  this.  He  says :  "  The  capitalist  has  a  great 
advantage    over   me,    he   can    compel    me    to    make   a   contract  by 

*  Se«  Col.  Grosvenor's  admirable  article  on  The  Railroads  and   the    Farms,  as  an  illustration. 
At.  Monthly,  vol.  32,  page  591. 


20  THE     PAYMENT    OF     LABOR. 

which  I  am  not  fairly  paid  for  my  services."  It  is  hke  telling  a 
man  to  deliver  up  his  money  or  forfeit  his  life.  The  capitalist 
says  :   "  Work  for  me  for  so  much  or  I  will  starve  you   to   death." 

And  because  he  has  this  advantage  over  the  laborer,  most  capi- 
talists are  not  slow  to  avail  themselves  of  it,  and  this  is  the  cause 
of  the  enmity  between  the  two  classes. 

The  laboring  class  receive  more  sympathy  because  they  are 
placed  at  the  greatest  disadvantage ;  they  are  not,  in  truth,  a  whit 
better  than  their  employers,  because,  when  they  become  wealthy, 
as  many  of  them  do,  they  quickly  come  to  see  things  as  other 
capitalists,  and  take  up  practices  which  once  they  condemned. 

This  is  not  an  encouraging  view  of  human  nature,  though  it 
must  be  said,  lest  some  one  be  deceived.  Capitalist  and  laborer, 
each  seeks  to  do  the  best  he  can  for  himself,  each  regards  his  in- 
terests as  antagonistic  to  those  of  the  other,  each  seeks  to  get 
every  advantage  over  his  opponent,  but  the  capitalist  is  most 
favorably  situated,  he  has  more  advantages,  and  can  generally  get 
the  better  half  of  the  bargain  with  the  laborer.  This  is  the  real 
situation  of  both  classes. 

In  making  the  contract  for  labor,  we  maintain  that  the  laborer 
ought  to  be  willing  to  work  for  a  reasonable  price,  and  the  em- 
ployer ought  to  be  willing  to  pay  it;  and  each  ought  not  to  take 
advantage  of  the  situation  of  the  other.  If  labor  be  plenty,  the 
employer  ought  to  pay  as  much,  other  things  with  him  remaining 
the  same;  if  scarce,  the  employed  ought  to  ask  no  advance  of 
wages,  provided  his  condition  in  other  respects  remains  unchanged. 
In  short,  people  ought  not  to  take  advantage  of  each  other  as 
they  do. 

This  law  men  are  violating  continually.  The  capitalist  declares 
that,  as   he   is  not   bound   to    employ  laborers   at   all,    he   has   the 


THE     PAYMENT     OF     LABOR.  21 

right  of  paying  them  any  price  that  may  be  agreed  upon.  In 
other  words,  as  he  is  independent  of  the  workman,  he  may  pay 
him  as  Httle  or  as  much  as  he  pleases.  The  plea  on  behalf  of 
the  capitalist  has  been  put  by  Mr.  Thornton,*  in  the  following 
form :  "  Capital,  being  under  no  previous  obligation  to  enter  into 
arrangement  with  labor  at  all,  is  at  liberty  to  reject  any  arrange- 
ment to  which  she  objects,  and  is  entitled  to  whatever  profit  may 
accrue  to  her  from  any  arrangement  to  which  labor  and  herself 
mutually  agree.  That  the  profit  which  thus  accrues  to  capital 
may  be  fairly  regarded  as  the  produce  of  the  labor  by  which  the 
capital  was  created  and  which  it  represents,  and  would  thus,  in 
the  absence  of  any  agreement,  belong  entirely  to  capital,  for  the 
self-same  reason  for  which  unassisted  labor  is  entitled  to  take  as 
its  reward  the  whole  of  its  own  produce."  Is  it  true  that  the 
capitalist  is  under  no  obligation  to  enter  into  agreement  with  the 
laborer  ?     Let  us  examine  the  question. 

What  are  the  relative  positions  of  the  two  ?  Let  the  capitalist 
cease  to  employ  the  laborer,  and  how  much  capital  has  he  left  ? 
Absolutely  nothmg.  The  laborer  keejjs  him  from  sinking.  Dis- 
pense with  his  services,  and  capital  vanishes  into  thin  air.  Dis- 
pense with  labor,  and  every  vessel  will  rot  at  the  wharves,  every 
farm  will  run  to  weeds,  the  spindle  will  not  give  out  its  music. 
No  man  will  have  anything  except  what  he  can  get  by  direct  exer- 
tion. As  for  selling  his  property  and  living  upon  the  income,  who 
will  buy  if  no  labor  can  be  employed  ?  A  great  factory  would 
not  sell  for  a  dollar,  because  it  would  be  of  no  more  use  to  the 
purchaser  than  the  moon.  That  all  desire  to  preserve  their  prop- 
erty and  enhance  its  value,  is  a  general  truth  which  no  one  will 
deny.     Of  course,  there    are    spendthrifts  who    have    no    ability  or 

'   0>i  Labor,  page  138. 


22  THE     PAYMENT     OF     LABOR. 

desire  to  acquire  property,  or  to  keep  what  they  may  have  inher- 
ited. But  this  is  not  true  of  mankind  in  general.  Their  desire  is 
for  more  wealth,  to  save  what  they  have  and  add  to  its  value. 
These  two  facts  then  being  true, — that  all  are  intent  upon  saving 
their  property,  and  that  labor  is  absolutely  necessary  for  this  pur- 
pose,— the  property-owner  ought  to  be  willing  to  pay  a  fair  com- 
pensation for  the  labor  whereby  his  riches  are  saved  and  increased. 
Now,  the  usual  way  of  looking  at  this  question  is  this — no  man 
is  obliged  to  build  a  ship,  or  a  factory,  in  order  to  employ  labor, 
because  he  can  loan  his  rhoney  to  others.  Very  true,  yet  what  do 
they  want  of  it  if  they  do  not  employ  labor  with  it  ?  If  the  man- 
ufacturer gets  tired  of  his  business  and  resolves  to  quit  upon  the 
ground  that  he  is  under  no  obligation  to  employ  any  one,  he 
sells  his  establishment,  and  what  then  ?  Why,  he  invests  his  prop- 
erty in  other  concerns  which  employ  labor.  He  employs  and  pays 
for  labor  less  directly;  that  is  the  only  difference.  His  money  is 
put  to  the  same  use  as  before.  He  buys  railroad  stocks,  but  the 
railroad  employs  labor  in  great  quantities.  He  puts  it  in  a  bank, 
but  the  bank  employs  labor,  and  loans  its  capital  to  others  who 
use  it  for  the  employment  of  labor.  Everywhere  capital  and  labor 
touch,  and  if  they  do  not,  one  is  as  worthless  as  the  other. 
Whether  employed  directly,  or  loaned  to  others  for  them  to  use, 
capital  must  be  employed  in  union  with  labor,  else  it  is  abso- 
lutely valueless.  The  man  who  is  worth  a  million  is  as  poor  as 
the  man  not  having  a  dollar,  and  both  must  get  a  living  by 
simple  and  similar  tasks.  As  men  will  not  do  that — as  they  will 
use  their  capital  themselves,  or  loan  it  to  others  to  be  used  by 
them — they  are  bound  to  pay  a  reasonable  reward  to  the  laborer 
for  his  services.  The  workman  is  just  as  necessary  a  factor  in  re- 
proJaction  as  capital,  and  rightfully  stands  upon  an  equal  plane. 


THE     PAYMENT     OF     LABOR.  23 

Again,  the  capitalist  asks  :  "  Have  I  not  a  right  to  do  what  I 
will  with  mine  own?  If  I  throw  my  capital  away,  surely  I  am 
under  no  obligation  to  employ  workmen,  for  if  I  am,  then  all  are 
bound  to  employ  labor,  whether  having  capital  or  not."  If  a  man 
has  nothing,  he  cannot  be  required  to  employ  labor ;  if  he  has 
property,  he  is  bound  to  use  it,  either  directly  or  indirectly,  for  his 
own  support  and  for  the  support  of  others.  Can  a  portion  of  such 
property  be  used  as  capital  in  reproducing  wealth,  then  it  is  a  duty 
he  owes  to  society  to  employ  it  so,  or  spend  it  in  other  ways. 
Government,  in  protecting  property,  thus  enabling  its  owner  to 
accumulate  more,  puts  him  under  obligation  to  employ  a  portion 
of  it  in  reproduction,  as  well  as  to  spend  another  portion  in  the 
maintenance  of  himself.  He  has  no  right  to  throw  it  away.  He 
must  use  it  himself,  or  loan  it  to  others  to  be  used  by  them. 
For,  if  he  will  not  use  it  himself  or  let  others  use  it,  his  property 
becomes  worthless,  and  the  State  is  obliged  to  support  him.  The 
State  has  the  right  to  see  that  no  man  wastes  his  property  so  as 
to  become  a  burden  to  the  public. 

It  is  not  necessary  to  go  to  this  extreme  length  to  defend  our 
proposition.  The  truth  is  simply  this — capital  is  utterly  worthless 
unless  joined  with  labor.  Men  are  in  fact  bound  to  employ  labor 
or  else  their  possessions,  whether  great  or  small,  are  of  no  value 
to  them  or  to  any  one  else.  Labor  is  just  as  necessary  a  factor 
in  the  saving  and  reproduction  of  capital,  as  in  producing  capital  m 
the  first  place.  Let  it  not  be  forgotten  that  in  this  whole  discus- 
sion we  are  not  talking  of  anything  but  labor,  present  and  accumu- 
lated. Accumulated  labor,  to  be  worth  anything,  must  be  united 
with  present  labor ;  the  two  operate  together.  Consequently,  the 
assertion  is  without  foundation  that  the  capitalist  is  under  no  obli- 
gation to  employ  labor.      Such  an  obligation  does  exist.      He  has 


24  THE     PAYMENT     OF     LABOR. 

no  right  to  throw  his  property  away.  We  assume  that  every  man 
is  desirous  of  saving  his  property ;  if  so,  he  must  employ  labor, 
else  his  property  becomes  valueless.  And  if  he  must  employ  labor 
to  save  it,  he  ought  to  pay  a  fair  compensation  therefor.  Sup- 
pose a  man's  house  was  in  danger  of  being  carried  away  by  a 
flood,  and  some  men  coming  along  were  asked  to  help  in  saving 
it.  They  have  no  time  to  make  a  definite  bargain  as  to  the 
remuneration,  but  engage  with  a  hearty  will,  and  by  their  efforts 
save  the  house.  Would  not  every  one  say  that  the  owner  of  that 
house  was  mean  if  he  were  not  willing  to  pay  those  men  a  rea- 
sonable compensation  for  their  services  ?  The  position  of  the  cap- 
italist is  the  same  in  respect  to  his  property.  His  capital  will 
vanish  like  a  stroke  of  lightning  unless  united  with  labor.  Analyze 
the  uses  made  of  capital,  and  all  cannot  help  admitting  the  fact. 
Labor  is  necessary  to  save  property  and  enhance  its  value;  if  the 
owners  of  lands,  factories,  etc.,  are  desirous  of  securing  these  ends, 
they  must  employ  labor.  Therefore  they  ought  to  pay  a  reason- 
able price  for   it. 

As  between  workmen,  there  is  a  natural  difference;  one  man  is 
worth  more  than  another,  because  he  has  greater  strength  or  skill. 
It  is  right  that  the  strongest  and  most  skillful  should  receive 
higher  wages.  Concerning  these  natural  advantages,  there  is  noth- 
ing to  be  said.  What  we  object  to  is  the  use  of  artificial  and 
wrongful  advantage.  If  the  corn  crop  is  less  this  year,  the  price 
should  not  be  increased,  except  to  require  people  to  practice  econ- 
omy, or  for  some  other  good  reason.  If  laborers  are  plentiful, 
let  them  be  paid  as  much ;  if  they  are  scarce,  let  them  work  for 
the  old  prices.  Let  no  advantage  be  taken  of  unnatural,  arti- 
ficial, or  forced  conditions,  and  all  will  be  well. 


THE     PAYMENT     OF     LABOR.  25 

It  will  be  said  that  this  mode  of  reasoning  is  contrary  to  the 
operation  of  supply  and  demand.  Shall  that  law  cease  to  be  ap- 
plied ?  No,  not  in  the  true  sense.  All  that  we  have  written 
about  asking  and  expecting  reasonable  prices,  does  not  conflict 
with  the  working  of  this  law.  There  is,  however,  a  wide  difference 
between  the  natural  and  unnatural  operation  of  supply  and  demand. 
Rightly  interpreted,  the  law  is  this — demand  is  what  people  really 
need  and  would  purchase  if  they  could  buy  at  a  reasonable  price ; 
and  supply  is  the  quantity  that  can  be  had  at  such  a  price.  But 
the  world  is  forever  interfering  with  this  law,  by  creating  artificial 
scarcity  on  the  one  hand,  and,  on  the  other,  by  trying  to  make 
the  demand  less  than  it  really  is,  so  as  to  beat  down  the  price. 
The  law,  to  a  great  extent,  does  not  express  the  truth  about  ex- 
changes. The  real  demand  is  often  much  greater  than  purchases 
indicate,  and  the  supply  also.  But  people  deceive  each  other; 
they  exercise  force,  they  refuse  to  sell  when  they  really  want  to, 
hoping  for  an  advance  of  prices.  The  buyer  refuses  to  buy, 
although  he  really  wants  the  thing,  hoping  to  get  a  reduction  of 
price.  So  numerous  are  the  deceptions  practiced,  the  real  state  of 
things  is  covered  up  so  deeply,  that  the  natural  law  of  demand 
and  supply  has,  in  fact,  only  a  limited  operation. 

.What  is  a  reasonable  price  depends  upon  many  things.  Obvi- 
ously, it  is  impossible  to  draw  any  hard  and  fast  line  defining  it. 
The  most  we  can  do  is  to  find  out  what  principle  should  govern 
in  making  contracts  between  capitalist  and  workman.  This  is  a 
reasonable  price  without  regard  to  any  advantage  which  either 
capitalist  or  laborer  might  take  of  the  condition  of  the  other. 

There  are  some  considerations,  however,  that  may  be  mentioned 
in  making  contracts  for  labor.  First,  the  laborer  should  receive 
more    where    the    work  is  hazardous  to    life    and    health,    than    in 


26 


THE     PAYMENT     OF     LABOR. 


those  occupations  which  are  healthy  and  free  from  accident.  An 
operative  in  a  powder  mill,  or  who  makes  certain  parts  of  a  brim- 
stone match,  ought  to  receive  higher  wages  than  a  person  working 
in  a  woolen  factory,  which  is  comparatively  healthy  and  safe.  Sec- 
ondly, a  person  ought  not  to  expect  so  much  who  receives  regular 
employment  as  a  person  who  cannot  get  work  regularly.  The 
ordinary  hackman  is  justified  in  charging  more  for  conveying  pas- 
sengers, if  he  can  get  them  only  now  and  then,  than  if  he  were 
employed  all  the  time.  The  same  person  will  charge  less  by  the 
hour  if  he  is  to  be  employed  for  several  hours,  than  if  employed  to 
go  a  short  distance,  in  proportion  to  the  time  required.  This  is 
just.  With  a  great  many  who  work  in  factories,  especially  in  New 
England,  they  ought  not  to  expect  so  much,  because  their  em- 
ployers, in  most  instances,  feel  bound  to  give  them  constant 
employment  if  possible.  Ofttimes  they  run,  and  at  a  loss,  when 
they  would  not  run,  except  to  keep  their  help  employed.  Other 
considerations  of  less  importance  probably  enter  into  the  contract 
fixing  the  price  of  wages. 

There  are  some  subsidiary  questions  surrounding  the  main  one 
which  require  notice.  It  is  said,  that  labor  is  paid  enough  gene- 
rally, whatever  the  price  may  be,  because,  as  a  class,  workmen  do 
not  make  a  wise  use  of  their  wages. 

That  workmen  are  often  prodigal  in  the  use  of  their  wages  will 
not  be  denied.  Since  the  war,  the  wages  of  factory  operatives 
have  remained  nearly  the  same  as  before,  the  prices  of  living  have 
been  reduced,  consequently  operatives  have  reaped  a  fine  harvest. 
Some  of  them  have  saved  their  money,  though  the  larger  number 
have  spent  it  all.  The  goods  in  the  factory  stores  and  villages 
have  changed  in  many  respects,  which  is  the  best  proof  of  the 
extravagance    of  this   class.     The    amount  of  jewelry  they  wear  is 


THE     PAYMENT     OF     LABOR.  27 

very  large  and  expensive  to  what  it  was  a  few  years  ago.  Their 
clothing,  also,  is  costlier,  and  their  living  as  well. 

Now,  it  is  said,  why  pay  them  so  much  ?  they  do  not  make 
an  economic  use  of  their  money ;  teach  them  to  use  it  properly 
before  giving  it  to  them.  This,  by  way  of  advice,  is  good.  Ope- 
ratives spend  a  great  deal  of  money  foolishly,  and  they  should  be 
taught  to  save  it  against  a  day  of  want,  and  for  nobler  uses. 
Yet  is  this  a  good  defence  to  paying  them  higher  wages  ? 

The  same  mode  of  arguing  will  cut  the  manufacturer  off  from 
making  money,  for  does  he  put  it  to  any  better  use  than  his 
operatives?  Is  he  not  as  extravagant,  does  he  not  spend  as  much 
money  foolishly  ?  He  cannot,  in  truth,  say  anything  on  that 
score. 

Thus  we  have  gone  over  the  ground  between  the  capitalist  and 
laborer,  and  sought  to  find  out  what  is  the  true  rule  in  the  pay- 
ment of  labor.  We  do  not  say  that  the  fixing  of  any  price  is 
always  best;  a  division  of  the  profits  upon  some  agreed  plan  is 
preferable,  whenever  a  division  is  practicable.  It  is  not  practicable 
in  every  case,  and  when  it  is  not,  this  rule  has  a  decided  prefer- 
ence over  every  other.  How  various  plans  for  rewarding  labor 
have  succeeded,  and  what  efforts  workmen  have  made  to  increase 
the  price  of  wages,  will  be  considered  in  the  next  chapter. 


III. 


ON     THE     INCREASE     OF     WAGES. 


The  history  of  the  efforts  to  increase  the  price  of  labor  is  a 
very  sad  one.  It  is  strewn  with  cruelty,  injustice,  and  suffering. 
It  is  very  instructive,  however,  and  proves  that  amid  the  strifes 
and  disappointments  of  contending  parties,  a  better  understanding 
has  been  created  between  them,  and  a  nearer  approximation  to 
perfect  justice,  which  will  one  day  mark  all   their  intercourse. 

Workmen  seek  to  secure  their  claims  in  the  following  ways : 
by  first  combining  into  societies,  called  trades-unions,  and  then 
demanding  higher  wages  by  conference  with  their  employers,  by 
councils  of  arbitration,  and  by  strikes.  The  other  ways  of  secur- 
ing their  rights  are  by  forming  industrial  partnerships,  and  by 
abandoning  the  capitalist  and  forming  co-operative  associations. 
We  shall  consider,  first,  the  methods  of  trades-union   societies. 

It  is  the    largest    voluntary    organization    in    the  world.*      The 

*  The  Amalgamated  Society  of  Engineers  in  England,  a  branch  of  the  trades-unions,  and 
numbering  about  35000  members,  has  an  annual  income  of  $440,000.  The  expenditures  of  the 
society  from  1851  to  1868  were  as  follows: 

Payments  to  members  out  of  work £  425,844 

Aids  in  sickness 161,388 

For  old  age 45.272 

For  accidents t6,ooo 

For  burials 50,250 

For  extra  fund  for  cases  of  special   emergency 12,526 

Aids  to   other  trades io>37S 

Total ;£  721,655 


ON    THE    INCREASE    OF    WAGES.  29 

principal  object  of  combining  is  to  secure  higher  wages,  while 
the  incidental  object  is  the  support  of  workmen  in  sickness  and 
destitution.  The  members  are  required  to  pay  a  certain  sum  per 
week  to  the  organization,  and  this  is  expended  in  the  support  of 
strikers,  sickness,   etc. 

The  aim  of  trades-unions  more  specifically  stated  is,  first,  to  op- 
pose any  reduction  of  wages;  secondly,  to  cause  a  rise  of  wages 
whenever  practicable;  thirdly,  to  convert  non-unionists  into  union- 
ists, either  by  persuasion  or  coercion,  the  former  means  being  pre- 
ferred.* Besides  these  aims,  they  have  sought  to  restrict  their 
own  competition  in  labor  to  certain  limits  deemed  necessary  to 
their  welfare.  The  chief  rules  agreed  upon  to  effect  this  object 
have  been  thus  stated  by  Mr.  GosTicK:t  "To  insist  on  apprentice- 
ship; to  contend  for  the  employment  of  workmen  and  apprentices 
in  a  certain  ratio  of  their  respective  numbers;  to  oppose  frequent, 
or  '  systematic '  working  beyond  the  regular  hours  agreed  on,  and 
to  prevent  the  employment  of  '  piece-masters.' "  \ 

Leaving  all  other  objects  of  the  society  out  of  sight  except  the 
principal  one  of  raising  the  price  of  wages,  workmen  are  entirely 
justified  in  uniting  for  this  purpose  so  long  as  they  pursue  proper 
methods  and  do  not  make  unreasonable  demands.  A  considerable 
hostility  has  been  displayed  towards  trades-unions,  as  they  are  con- 
sidered the  enemies  of  the  capitalist.  In  one  sense  they  are.  The 
object  of  their  creation  is  to  increase  the  price  of  labor — in  other 
words,  to  get  a  larger  share  of  the  capitalist's  profits,  which,  in 
most  instances,  he  is  unwilling  to  give.  In  England,  especially, 
the  greatest  opposition  to  these    societies  has  been    exhibited.       In 

*  IVard's  IVorkmen  and  IVages,  p.  18. 
t  Cobden  Chib  Essays,  p.  380,  second  series. 

;  "This    'piece-master'    is  a  foreman,  whose  extra   gains  sometimes   depend  on  extra  pressure 
put  upou  the  labor  of  those  who  work  under  his  superintendence."— Gostick. 


30  ON     THE     INCREASE    OF     WAGES. 

this  country,  labor  is  better  rewarded  and  is  more  content.  It  is 
in  England  that  the  laborer  has  fared  worst,  where  the  supply  of 
labor  is  largest.  Trades-unions  have  been  more  extensively  organ- 
ized there  than  in  any  other  country;  in  England  has  their  power 
been  most  keenly  felt. 

It  is  just  as  evident  that  laborers  have  a  right  to  combine  in 
order  to  get  their  dues,  as  capitalists  have  to  combine  for  the  pur- 
pose of  resisting  an  advance  of  wages.  As  long  ago  as  when 
Adam  Smith*  wrote,  he  said  that  "  masters  are  always  and  every- 
where in  a  sort  of  tacit,  but  constant  and  uniform  combination, 
not  to  raise  the  wages  of  labor  above  their  actual  rate.  To  vio- 
late this  combination  is  everywhere  a  most  unpopular  action,  and 
a  sort  of  reproach  to  a  master  among  his  neighbors  and  equals." 

Mr.  Thornton  has  reaffirmed  the  remark :  "  Large  employers 
in  any  one  extensive  department  of  industry  are  not  at  all  in  the 
habit  of  competing  with  each  other  for  labor.  On  the  contrary, 
theh:  custom  is  to  deliberate  together  from  time  to  time,  in  order 
to  determine  what  wages  it  may,  in  existing  circumstances,  be 
advisable  for  them  to  offer,  and  some  uniform  rate  is  agreed  to 
accordingly."  t 

It  was  a  long  period  before  workmen  in  England  were  permit- 
ted to  form  these  societies,  so  strongly  entrenched  were  capital- 
ists in  the  legislation  of  the  realm.  In  1799,  the  following  act  of 
Parliament  shows  the  willingness  of  that  body  to  legislate  against 
the  combination  of  workmen :  "  Contracts  entered  hito  for  obtain- 
ing an  advance  of  wages,  for  altering  the  usual  time  for  working, 
or  for  decreasing  the  quantity  of  work  (excepting  such  contract 
be  made  between  a  master  and  his  journeyman),  or  preventing 
any  person  employing  whomsoever  they  may  think  proper  in  their 

*  Vol.  I,  p.  70,  Rogers'  ed.     t  H'^esi.  Rev.,  vol.  8i,  p.   i66,  Am    ed. 


ON    THE     INCREASE     OF    WAGES.  31 

trade,  or  for  controlling  the  conduct,  or  any  way  affecting  any 
person  or  persons  carrying  on  any  manufacture  or  business,  in  the 
conduct  or  management  thereof,  shall  be  declared  illegal,  null  and 
void."* 

This  statute  illustrates  how  workmen  were  regarded  in  that  day. 
Nor  was  it  until  1827  that  Parliament  repealed  all  statutes  pro- 
hibiting workmen  from  combining.  Until  then,  employers  and 
Parliament  had  taken  it  for  granted  that  they  alone  could  regulate 
the  price  of  wages. 

In  having  the  right  to  combine  acknowledged  by  Parliament, 
the  cause  of  the  workman  was  much  advanced.  He  was  for  the 
first  time  put  upon  the  same  plane  with  the  capitalist.  They  could 
now  combine  to  work  the  price  of  labor  up,  as  capitalists  had 
hitherto  combined  to  keep  the  price  of  labor  down. 

In  this  country,  happily,  we  have  never  been  troubled  with  this 
question.  So  far  as  our  National  or  State  Governments  are  con- 
cerned, workmen  have  no  just  cause  of  complaint.  They  have 
always  been  placed  upon  the  same  footing  as  the  capitalist,  and 
have  enjoyed  the  unquestioned  right  to  form  trades-union  societies. 
It  is  not  until  recently  that  the  old  doctrine  of  the  right  of  the 
State  to  control  the  price  of  labor  has  been  revived.  This  desire 
has  been  expressed  by  Governor  Brown,  of  Georgia.  In  his  last 
annual  message,  he  said  that  "  labor  must  be  controlled  by  law. 
We  may  hold  inviolate  every  law  of  the  United  States,  and 
still  so  legislate  upon  our  labor  system,  or  in  lieu  of  that,  estab- 
lish a  baronial  one."  We  imagine  that  there  is  no  danger  of  the 
old  Enghsh  law  being  re-enacted  on  this  republican  soil.  Liberty 
to  contract  for  labor  is  too  deeply  grounded  to  be  crushed  out  by 
the  fiat  of  Gov.  Brown,  or  by  any  one  else  of  his  way  of  thinking. 

"^40  George  111,  chap    90. 


32  ON    THE     INCREASE     OF     WAGES. 

In  this  country  trades-unions  are  of  less  account,  because  work- 
men, as  a  general  thing,  are  well  paid.  So  long  as  there  is  so 
much  unimproved  land  to  be  easily  had,  the  claims  of  labor 
will  get  a  fair  hearing.  The  western  prairies  are  an  asylum  to 
which  the  laborer  may,  at  any  time,  fly  from  the  face  of  his  op- 
pressors. 

Three  ways  there  are,  as  we  have  said,  by  which  trades-unions 
seek  to  get  an  advance  of  wages:  by  conference  with  their  employ- 
ers, by  councils  of  conciliation,  and  by  strikes.  Concerning  the 
latter  mode  we  will  speak  first. 

Strikes,  which  in  the  fourteenth  century  had  their  counterpart  in 
the  Jacquerie  riots,  are  the  last  thing  for  the  laborer  to  resort  to 
in  order  to  get  an  advance  of  wages.  As  for  the  justice  of  them, 
if  workmen  are  not  getting  a  reasonable  price  for  their  work,  and 
their  employers  refuse  to  pay  more,  after  working  the  length  of 
time  agreed  upon,  they  are  justified  in  quitting  their  places.  That 
is  all  there  is  in  the  phenomena  of  strikes,  refusal  to  work  unless 
an  advance  be  paid,  and  the  workman  has  a  perfect  right  to  de- 
mand such  a  price  and  to  quit  working  unless  the  advance  be  of- 
fered.* 

In  England,  and  we  believe  the  same  is  true  in  this  country, 
workmen,  generally,  have  oftener  struck  to  resist  a  fall  than  to 
secure  a  rise  of  wages.  Says  Mr.  BRASSEY,t  "  Resistance  to  a  pro- 
posed reduction  was  the  cause  of  the  engineers'  strike  in  1852;  of 
the  strike  at  Preston  in  1853;  of  the  strike  in  the  iron  trade  in 
1865;    and   of  the   strike   of  the   colliers,   at  Wigan,   in    1868.     In 

*  Mr.  Thornton  has  considered  the  ethics  of  strikes  fully  in  a  paper  pubhshed  in  the  IVest. 
Rev.  upon  Strikes  and  Industrial  Co-operation;  vol.  8i,  pp.  165 — 67.  Some  able  and  interesting 
observations  upon  this  subject  are  contained  in  a  paper  by  Frederic  Harrison  entitled  The 
Iron-Masters'  Trades-Union,  Fort.  Rev.,  vol.  i,  p.  96. 

♦  Work  and  Wages,  p.  6. 


ON     THE     INCREASE     OF     WAGES.  ;^;^ 

each  of  these  cases,  the  masters  had  found  it  necessary,  in  conse- 
quence of  the  depressed  state  of  trade,  to  reduce  the  rate  of 
wages :  but  the  men,  ignoring  the  circumstances  of  the  trade,  and 
looking  only  to  what  they  believed  to  be  a  degradation  of  their 
position  as  workmen,  refused  to  accept  the  reduction." 

Although  in  many  cases  workmen  have  failed  to  get  higher 
wages,  yet  not  always.  One  of  the  principal  reasons  given  for 
Great  Britain's  failure  to  supply  iron  manufactures  to  this  and 
other  countries,  is  the  very  large  advance  in  the  price  of  labor 
occasioned  by  the  strikes  of  trades-union  societies.  The  London 
Times*  in  a  recent  editorial  on  the  decline  of  the  English  iron 
trade  with  the  United  States,  remarked  that  the  price  of  iron 
depended  very  materially  upon  the  price  of  coal.  Anything  that 
raises  the  price  of  coal  aftects  the  price  of  iron.  "  Now,"  says 
that  journal,  "  without  pronouncing  judgment  on  the  disputed  ques- 
tion whether  strikes  have  been  the  exclusive  cause  of  the  late  rise 
of  coal  in  England,  we  may  take  it  as  granted  that  they  have 
been  a  very  principal  cause,  and  that  they  are  now  exercising 
a  controlling  influence  in  keeping  up  the  admittedly  excessive 
price." 

Strikes,  in  this  country,  have  not  been  very  serious  or  long  pro- 
tracted. They  have  occurred  in  almost  every  branch  of  trade;  in 
the  cotton  and  woolen  mills,  among  the  coal  mines,  engineers  of 
railways  have  occasionally  struck,  masons,  carpenters,  printers,  and 
others.  The  coal-mine  strikes  have  been  the  most  extensive  and 
expensive  of  any.  Mr.  Thornton  has  summed  up  the  result  of 
some  of  the  numerous  strikes  in  England,  happening  within  the 
last  twenty-five  years,  but  a  detailed  account  of  them,  and  many 
others  besides,  will  be  found  in    Ward's   Workmen  and  Wages.    We 

'  Aug.  29,  1873. 

4 


34  ON    THE    INCREASE     OF    WAGES. 

shall  merely  mention  the  great  strike  of  the  Manchester  spinners 
in  1829,  when  $1,250,000  wages  were  forfeited;  the  Ashton  and 
Staleybridge  strikes  of  1829  and  1830,  participated  in  by  30,000 
spinners  and  who  lost  $1,250,000;  the  strikes  of  the  Tyne  and 
Wear  pitmen  in  1832,  which  were  very  protracted;  the  Manches- 
ter builders'  strike  in  1833,  when  $360,000  of  wages  were  lost; 
the  "terrible"  strikes  of  the  Preston  spinners;  first,  in  1836,  lasting 
thirteen  weeks  and  costing  the  men  $286,000;  and  secondly,  in 
1854,  when  17,000  persons  went  into  volmitary  idleness,  suffering 
intensely  for  thirty-six  weeks,  and  giving  up  $2,100,000  wages; 
the  engineers'  strike  in  1853,  of  fifteen  weeks'  duration,  in  which 
$215,000  wages  were  sacrificed;  the  strike  in  the  metropolitan 
building  trade  in  i860;  and  the  strikes  of  the  iron  workers  of 
Staffordshire  and  the  North  in  1865,  and  of  the  London  tailors  in 
1868;  these  are  a  few  of  the  more  prominent  instances. 

Before  resorting  to  strikes,  workmen,  in  many  cases,  seek  to 
settle  their  differences  with  their  employers  by  arbitration.  Oft- 
times  a  hearing  is  had,  both  parties  state  their  claims,  and  the 
arbitrator  renders  a  decision,  which  is  accepted  as  final  by  both 
parties.  These  courts  of  conciliation  have  been  the  authors  of  an 
immense  amount  of  good,  and  prevented  numerous  strikes.  The 
employer,  by  coming  forward  at  these  times  and  making  a  full 
showing  of  his  business — what  he  can  afford  to  pay  and  what  not 
— has  saved  both  himself  and  his  workmen  from  many  a  rupture 
and  loss  of  work  and  profits. 

This  mode  of  settling  disputes  between  employer  and  employed 
originated  in  France,  and  is  there  termed  Conseils  des  Prud'- 
hommes.  They  are  established  by  decree  of  government,  and 
consist  of  a  president,  vice-president,  who  can  be  neither  workmen 
nor   employers,   and   six   members    elected   by   both   classes.      The 


ON     THE     INCREASE     OF     WAGES.  35 

proceedings  are  inexpensive,  the  judges  not  being  j^aid;  and  a 
delegation  of  the  council,  consisting  of  one  employer  and  one 
workman,  sit  in  judgment  almost  daily.  "  The  result,"  says 
Brassey,*  "  in  ninety-five  out  of  one  hundred  cases  brought 
before  these  tribunals,  is  a  reconciliation  between  the  ])arties;  and, 
though  appeals  are  permitted  to  the  superior  courts  of  law,  they 
are  rarely  made.  ...  In  1850,  28,000  disputes  had  been 
heard  before  the  Conseils  des  Prud'hommes,  of  which  no  less  than 
26,800  were  satisfactorily  settled." 

Little  has  been  said  about  the  establishment  of  courts  of  con- 
ciliation in  this  country,  yet  they  have  produced  so  much  peace 
abroad,  that,  were  the  tribunal  established  here,  it  probably  would 
yield  the  best ,  results.  When  a  division  between  the  two  classes 
has  actually  broken  out,  these  courts  can  do  little,  perhaps,  to 
make  peace;  but  if  they  are  instituted  early  enough,  they  are 
likely  to  save  many  a  bitter  and  expensive  contest  between  the 
capitalist  and  his  workmen. 

Having  shown  how  the  workman  seeks  to  increase  his  wages  by 
strikes,  we  turn  to  another  side  of  the  same  subject  to  present  the 
experience  of  improving  his  lot  by  co-operation.  This  is  of  two 
kinds:  first,  co-operation  of  workmen  simply;  secondly,  co-opera- 
tion with  capitalists,  which  latter  method  of  conducting  business  is 
termed  an  industrial  partnership.  W'e  shall  not  tarry  long  with 
either  of  these  topics  and  do  little  more  than  point  out  a  few 
results,  for  the  history  of  these  movements  has  been  related  so 
many  times,,  that  the  i)ublic  are  ([uite  well  informed  of  it   already. 

The  birth  of  the  first  co-operative  society  occurred  in  Rochdale 
nearly  thirty  years  ago.  The  organization  was  called  the  Rochdale 
Pioneers.      The    history    of  the    society  has    been    told    in  a  most 

*   iVor/c  and  Wages,  p.  272. 


36  ON     THE     INCREASE     OF     WAGES. 

attractive  way  by  Mr.  Thornton  in  his  work  On  Labor.  The 
rise  of  this  society  was  like  the  grqwth  of  a  mustard  seed.  In 
the  beginning,  twenty-eight  flannel  weavers,  disgusted  with  the 
poor  quality  and  outrageous  price  of  the  provisions  they  were  in 
the  habit  of  buying,  subscribed  two  and  three  pence  a  week  to- 
wards making  up  a  sum  of  twenty-eight  pounds,  which  they  spent 
in  purchasing,  at  wholesale  prices,  in  Manchester,  flour,  sugar, 
butter,  and  oatmeal.  From  this  common  stock,  each  took  what  he 
wanted  at  the  current  prices,  paying  in  cash;  and  when  the  whole 
amount  had  been  sold,  they  were  surprised  to  find  that  so  much 
had  been  made  by  the  operation.  They  repeated  the  experiment. 
They  purchased  in  larger  quantities  and  added  to  their  subscribers. 
The  embryo  association  was  laughed  at  in  the  beginning,  but  it 
continued  to  grow,  and  after  a  short  time  it  was  found  that  a 
room  was  necessary  to  hold  the  goods  purchased.  A  small  one 
was  hired,  and  it  was  arranged  that  one  of  their  number  should 
act  as  salesman  for  a  few  hours  during  two  evenings  in  the  week. 
In  1845,  the*  second  year  of  the  society,  the  number  of  sub- 
scribers had  increased  from  twenty-eight  to  seventy-four,  and  the 
capital  was  ^181,  upon  which  a  net  benefit  of  ^32  had  accrued. 
The  two  following  years  they  divided  ^80  and  ^77;  and  they 
have  gone  on  increasing  at  a  wonderful  rate  ever  since.  In  1847, 
linen  and  woolen  drapery  was  added  to  the  original  grocery  and 
chandlery  business;  in  1850,  a  butcher's  shop  was  grafted  on; 
shortly  after,  a  slaughter-house;  in  1852,  shoemaking  and  tailoring 
were  begun.  A  single  glance  at  the  profits  tells  the  story  of  prog- 
ress. We  have  not  space  for  all  the  figures ;  we  will  simply 
show  what  they  were  at  the  end  of  each  period  of  five  years. 
The  society  was  started  in  1844,  and  the  net  profits  run  as 
follows : 


ON    THE     INCREASE    OF    WAGES.  37 

1845,     £Z2          1848,  £\\']  i860,  ^15,906 

1S46,        80         1849,  561  ....  1S65,  25,156 

1847,        72          1850,  880  1867,  41,619 

1855,  3,106 

The  causes  of  their  success  are  very  clearly  seen.  They  bought 
at  wholesale,  and  always  paid  in  cash,  thus  getting  the  largest 
discounts.  They  never  sold  on  credit,  and  consequently  had  no 
bad  debts.  Having  a  large  number  of  shareholders,  they  were 
assured  of  plenty  of  customers,  and  were  under  no  necessity  of 
spending  a  penny  to  make  themselves  known  in  order  to  obtain 
trade.  The  expenses  of  management  were  small,  not  exceeding 
two  per  cent,  of  the  business  done.  For  attracting  outsiders,  their 
equitable  distribution  of  profits  was  a  device  far  more  efficacious 
than  a  showy  front  or  advertising. 

When  any  one  makes  a  purchase,  he  receives  a  tin  ticket, 
whether  a  member  of  the  association  or  not,  denoting  the  sum  he 
has  paid.  At  the  end  of  every  quarter,  when  profits  are  declared, 
there  is  a  deduction  of  five  per  cent,  per  annum,  for  interest  on 
the  capital,  another  deduction  of  two  and  one-half  per  cent,  as 
an  education  fund  is  taken  out,  and  the  balance  is  divided 
among  the  holders  of  the  tickets. 

There  are  some  very  decided  benefits  arising  from  this  form  of 
co-operation.  First,  one's  money  goes  farther  than  anywhere  else; 
secondly,  the  stores  give  the  l)est  possible  security  to  the  })ur- 
chaser  that  what  he  buys  will  be  of  the  best  quality,  since  it  is 
the  same  as  the  owners  of  the  concern  purchase  for  themselves. 
Upon  these  points  Mr.  Holvoake  *  has  jusdy  said:    "The  whole 

*  Self-Help,  pp.  38-g.  He  also  says:  "They  have  no  interest  in  chicanery.  Their  sole  duty 
is  to  give  fair  measure,  full  weight,  and  pure  quality,  to  men  who  never  knew  before  what  it 
was  to  have  a  wholesome  meal,  whose  shoes  let  in  water  a  month  too  soon,  whose  waistcoats 
shone  with  devil's  dust,  and  whose  wives  wore  calico  that  would  not  wash.  These  men  now  buy 
in  the  market  like  millionaires,  and,  as  far  as  pureness  of  food  goes,  live  like  lords.  The)'  make 
their  own  shoes,  sew  their  own  garments,  and  grind  their  own  corn.    They  buy  the  purest  sugar 


38  ON    THE     INCREASE    OF     WAGES. 

atmosphere  of  a  store  is  honest.  In  that  market  there  is  no  dis- 
trust and  no  deception — no  adulteration  and  no  second  prices. 
Buyer  and  seller  meet  as  friends.  There  is  no  overreaching  on 
the  one  side,  and  no  suspicion  on  the    other." 

Besides  supplanting  dearer  and  poorer  shops,  co-operative  stores 
stimulate  to  self-amendment  and  promote  prudence.  The  poorer 
class,  considering  the  means  they  have,  are  not  infrequently  quite 
as  wasteful  and  extravagant  as  others ;  but  these  societies  have  a 
most  beneficial  effect  in  the  way  of  elevating  all  concerned,  and 
making  them  prudent  and  more  self-reliant  men.* 

The  other  form  of  co-operation  is  that  of  industrial  ])artnership. 
This  is  the  more  natural  method,  because  capital  is  brought  in  to 
the  aid  of  labor.t 

The  idea  of  an  industrial  partnership  is  for  the  capitalist  to 
give  the  workmen  wages,  a  sum'  rather  low,  enough  to  sustain 
themselves  by  living  prudently,  and  then,  after  deducting  a  certain 
sum  for  the  use  of  the  capital,  to  divide  the  rest  of  the  profits,  if 
any  there  be,  upon  certain  terms  agreed  upon  between  the  em- 
ployer and  his  employees.  The  most  successful  industrial  estab- 
lishments in  Great  Britain  are  the  Methley  collieries,  owned  by 
Henry  Briggs,  Son  &  Co.,  and  several  slate  quarry  organizations 
in  Wales. I  The  first  of  these  organizations  is  worthy  of  a  brief 
description.  The  business  of  the  proprietors  was  undertaken  in 
1852.       For    the    next    twelve  years  their   relations  with  their  men 

and  the  liest  tea,  and  grind  their  own  coffee.  They  slaughter  their  own  cattle,  and  the  finest 
beasts  of  the  land  waddle  down  the  streets  of  Rochdale,  for  the  consumption  of  flannel-weavers 
and  cobblers," 

*  An  article  by  Prof  Fawcett  upon  the  Position  and  Prospects  of  Co-operation,  in  the 
February  No.  of  Fort.  Rev.,  1874,  Is  worth  reading  in  this  connection.  Also  one  by  Thomas 
Hughes  upon  The  Working  Classes  of  Europe,  Inter.  Rev.,  March,   1874. 

1  In  Germany,  workmen  form  associations  and  the  State  and  banks  loan  them  money  to 
be  used  in  the  prosecution  of  their  busnie^s.  This  is  also  done  by  the  French  Government  to 
a  limited  extent. 

;  For  a  description  of  the  slate  quarries  see  Cairnes    Essays  on  Polit.  Econ.,  p.   166. 


ON    THE     INCREASE     OF    WAGES.  39 

were  most  unsatisfactory,  and  strikes  were  constantly  occurring. 
In  1865,  they  launched  their  experiment  of  an  industrial  partner- 
ship. The  business  of  the  firm  was  transferred  to  a  joint-stock 
company,  the  owners  retaining  two-thirds  of  the  shares,  and  offer- 
ing the  other  third  to  the  public,  and  especially  inviting  their  em- 
ployees to  become  shareholders.  At  the  same  time  they  arranged 
"  that  whenever  the  divisible  profits  accruing  from  the  business, 
after  a  fair  and  usual  reservation  for  redemption  of  capital  and 
other  legitimate  allowances,  exceeded  ten  per  cent,  on  the  capital 
embarked,  all  those  employed  by  the  company  as  managers, 
agents,  or  work-people,  should  receive  one-half  of  such  excess 
profit  as  a  bonus,  to  be  distributed  among  them  as  a  per  centage 
on  their  resj)ective  earnings  during  the  year  in  which  such  profit 
should  have  accrued." 

They  made  no  claim  to  disinterestedness ;  they  adopted  the  sys- 
tem as  one  of  convenience  and  speculation.  Their  profits  had 
never  exceeded  ten  per  cent.,  and  these  they  were  sure  of  receiv- 
ing before  there  was  any  division  to  the  employees. 

The  undertaking  proves  that  the  Briggs  reasoned  well.  The 
experiment  has  been  a  brilliant  success.  All  the.  expectations 
based  upon  it  have  been  realized,  and  some  unlooked-for  advan- 
tages have  accrued.  The  trial  began  July  i,  1865.  "At  the  end 
of  the  first  twelve-month  the  total  of  profits  was  found  to  be 
fourteen  per  cent.,  of  which  the  shareholders  took  twelve  and  the 
work-people  two  per  cent.  In  tlie  second  year  the  total  was  six- 
teen i)er  cent.,  the  shareholders  getting  thirteen  per  cent,  and  the 
workpeople  three.  In  the  third  year  tlie  corresponding  figures 
were  seventeen  and  three  and  a-half"* 

Industrial    partnerships   are    the    consummate    flower  of  the    war 

*  Thornton  On  Labor,  p.  352. 


40  ON     THE     INCREASE     OF     WAGES. 

between  labor  and  capital.  Men  like  profits  better  than  salaries. 
We  suspect  this  is  the  outcropping  of  the  speculative  or  gambling 
spirit  which  every  person  displays  in  some  degree.  It  is  only 
fair,  though,  since  workmen  add  their  full  share  to  the  increase  of 
capital,  that  the  division  of  such  increase  be  equitable.  It  is  the 
best  stimulus  to  workmen — they  put  forth  their  best  energies — and 
it  is  the  fairest  mode  of  conducting  business  whenever  possible. 
The  whale  fisheries  have  always  been  conducted  on  this  principle. 
It  is  worthy  of  more  attention  than  it  has  received,  for  it  reveals 
the  true  relationship  that  should  exist  between  the  capitalist  and 
the  workman.  They  join  hands,  brains,  and  strength,  for  the  same 
common  end,  to  produce  more  wealth,  and  to  make  a  fair  division 
thereof  betAveen  them. 

The  unity  of  the  relation  between  the  two  classes  is  being  more 
clearly  seen,  and  the  enmity  between  them  is  slowly,  but  surely, 
disappearing.     Can  we  not  see  in  vision    as  Thornton  has  seen— 

"       *     *     *     of  shadows  thrown  before 
Coming  events,  things  that  surely  be, 
Nor  now  delayed,  but  until  man,  no  more 
Wholly  on  blinding  lust  intent,  shall  see 
That  his  whole  interest  and  his  kind's  are  one, 
Blended  in  individual  destiny." 


IV. 


EFFECT  OF  MACHINERY  ON  LABOR. 


Wealtli  is  increased  in  one  of  three  ways — by  transmutation,  by 
transportation,  and  by  transformation.  The  first  way  is  that  of  the 
agriculturahst ;  the  second  of  the  merchant  and  carrier ;  the  third, 
the  manufacturer  and  mechanic's. 

In  each  of  these  three  ways,  the  most  important  principle, 
especially  in  the  latter  way,  of  increasing  wealth,  is  by  the  proper 
division  of  employments.  This  portion  of  the  field  of  })olitical 
economy  has  been  fu^ly  explored  by  able  writers,  though  perhaps 
no  one  since  Adam  Smith  has  made  so  many  discoveries  in  it 
as  Charles  Babbage,  in  his  Economy  of  Manufactures.  Among 
the  three  advantages  of  dividing  employments  mentioned  by  Smith, 
is  the  invention  of  machinery.  Some  of  the  effects,  direct  and 
remote,  flowing  from  its  use  may  l)e  noticed,  as  they  have  not 
been  fully  described. 

One  effect  is  the  continued  hostility  on  the  part  of  workmen  to 
the  introduction  of  all  machinery  superseding  labor.  This  hos- 
tility is  nothing  compared  to  what  it  was  in  former  times.  *'  Yet 
there  are  a  considerable  number  of  the  working-classes  wiio  have 
a  lingering,  lurking  dislike  to  machinery,  which  they  cannot  ration- 
ally explain,  and  who  look  with  the  liveliest  ai)i)rehensi()n  at  any 
improvement  which    may  be    effected  in  that  grand  aid   to    human 


42  .  EFFECT    OF     MACHINERY    ON     LABOR. 

industry."  *  Mr.  WARDt  intensifies  this  truth  by  referring  to  the 
riot  at  Coventry,  England,  which  arose  from  the  attempt  to  apply 
steam-power  in  the  manufacture  of  ribbon ;  and  to  the  opposition 
at  Northampton,  Kettering,  and  WeUingboro',  over  the  introduc- 
tion of  sewing-machines  in  the  manufacture  of  boots  and  shoes. 
Another  good  authority  has  affirmed  that  hundreds  of  inventions 
are  not  utihzed  because  trades-unions  are  opposed  to  their  use,  and 
are  powerful  enough  to  have  their  way.  MiUions  of  bad  bricks 
are  made  annually,  because  this  society  will  not  permit  the  use  of 
brick-making  machinery.  No  spirit  of  injurious  opposition  to  the 
use  of  labor-saving  machinery  has  appeared  in  this  country,  nor 
has  any  occasion  happened  to  rouse  opposition,  as  there  has 
always  been  a  flood-tide  of  work  for  every  one.  May  this  spirit 
always  prevail  here,  for  the  sake  of  the  workman  and  all. 

It  cannot  be  denied  that  labor-saving  machinery  displaces  labor. 
It  must  do  so  during  some  period  of  its  use  else  the  name  is  a 
false  one.  As  a  railway  engine  will  do  the  'work  of  many  horses, 
thus  superseding  the  use  of  the  noble  animal,  so  the  horse  has 
superseded  the  work  of  thousands  of  men,  because,  in  many  ways, 
it  can  accomplish  more. 

The  invention  of  machinery  has  been  more  wonderful  in  this 
country  than  in  any  other.  This  is  owing,  principally,  to  the 
scarcity  of  labor,  though  partly  to  the  greater  skill  of  the  mechan- 
ics. It  is  worthy  of  note  how  the  strikes  in  England  are  leading 
the  manufacturers  to  develop  more  perfectly  the  use  of  machinery 
there.  This  was  mentioned  by  Mr.  Nasmyth,  a  noted  English 
manufacturer,  in  his  evidence  given  before  the  Trades-union 
Commissioners.     His  desire  to   invent   labor-saving   machinery  was 

*  Edmund  Potter;  paper  read  at  Social  Science  Meeting,  Glasgow,  1868. 
t  IVofkmen  and  linages,  p.  240. 


EFFECT    OF     MACHINERY    ON     LABOR.  43 

increased  by  a  strike,  in  1851,  affecting  his  business.  By  new 
contrivances  invented  since  that  time,  he  had  been  able  to  reduce 
the  number  of  men  from  fifteen  hundred  to  one-half  as  many. 

"That  machinery  does  not  diminish,  but  enlarges  the  field  of 
employment,"  says  one  author,  "  is  a  thesis  which  he  would  be 
ashamed  to  argue."  We  are  sure  the  statement  cannot  be  received 
without  explanation.  Did  no  new  cause  operate  upon  the  intro- 
duction of  machinery  except  a  reduction  in  the  price  of  tlie '  pro- 
duct, the  field  of  employment  would  certainly  be  diminished.* 
Let  a  machine  be  invented  by  which  half  the  labor  required  to 
make  a  particular  thing  is  displaced.  Let  the  future  price  of  it 
be  reduced  in  proportion  to  the  diminished  cost  of  manufacture. 
Will  the  demand  double  so  that  the  men  first  thrown  out  of  em- 
ployment   will    be    subsequently  employed    in    the    same    business  ? 

*  The  economy  often  wrought  through  the  use  of  machinery  is  remarkable.  During  the  re- 
cent war,  the  English  developed  their  machinery  for  making  fabrics  more  than  ever  before  dur- 
ing the  same  time,  and  reduced,  to  a  considerable  extent,  the  amount  of  labor  required  to  run 
it,  as  the  following  table  shows: 

Cotton   Factories. 

1856.  1S61.  1868. 

No.  of  Factories 2,2ro  ....  2,887  ....  2,549 

No.  of  Spindles 28,010,217  ....  30,387,467  ....  32,000,014 

No.  of  Power  Looms 298,847  ....  399.992  ••••  379.329 

No.  of  Persons   Employed..           379,213  45i.5^9  401,064 

Woolen,  Worsted  and  Shoddy  Factories. 

1856.                             1861.  1868. 

No.  of  Factories 2,030         ....              2,211  ....  2,465 

No.  of  Spindles 3.i".52i         •     •       3.471.781  ••■■  6,455,879 

No.  of  Power  Looms 53.399         ••••            64,818  ....  118,865 

No.  of  Persons  Employed. .           166,885         ....           173.046  •  •  •  •  2S3.°S6 

Flax,  Hemp  and  Jute  Factories. 

1856.                             1861.  1868. 

No.  of  Factories 417         ■  ••■                  440  ••■•  472 

No.  of  Spindles 1,288,043           ...        1,252,236  ■•••  1,679,357 

No.  of  Power  Looms 8,689         ....             iS.347  ■  •  •  •  35.047 

No.  of  Persons  Employed..            80,262         ....            94.oo3  ••••  '35.333 


44  EFFECT  OF  MACHINERY  ON  LABOR. 

By  no  means.  In  fact,  if  such  a  saving  in  the  cost  of  production 
takes  place,  a  long  period  ensues,  generally,  before  the  purchaser 
gets  the  full  benefit  of  the  improved  machinery. 

It  does  not  follow,  though,  that  the  workman  fares  worse,  in 
the  end,  from  the  introduction  of  machinery.  The  fruit  of  his 
brain  is  not  bitterness  to  his  body.  By  inventing  machinery  and 
economizing  labor,  he  does  not  dig  his  own  grave.  Far  from  it. 
Labor  is  released,  by  the  use  of  machinery,  for  a  season ;  after- 
wards, it  all  returns. 

In  what  way  ?  By  cheapening  the  price  of  products,  and, 
from  the  increase  of  national  wealth,  the  demand  is  enlarged.* 
Hence,  a  larger  supply  must  be  had.  It  is  this  second  cause 
joined  to  the  first  which  crowds  the  demand,  in  many  things,  upon 
the  heels  of  the  producer  as  sharply  as  ever.  When  the  sewing- 
machine  was  invented,  it  was  believed  that  thousands  of  women 
would  thereafter  find  no  work.  What  has  happened?  First,  a 
larger  amount  of  clothing  is  demanded,  because  the  cost  of  mak- 
ing it  is  less;  secondly,  the  amount  of  sewing  upon  some  things 
has  largely  increased ;  thirdly,  there  is  more  wealth  with  which  to 
pay  for  clothing  and  sewing.  Has  the  invention  of  the  steam  en- 
gine driven  men  out  of  employment  ?  Whether  in  transportation, 
or  other  business,  it  has  been  the  means  of  multiplying  the  de- 
mand for  labor.  Not  only  do  workmen  continue  to  be  employed 
since  the  introduction  of  machinery,  but  also  at  better  rates ;  while 
others  find  work,  because  some  of  the  processes  of  production  are 
greatly  simplified.  Workmen  can  be  employed  to  make  parts  of 
locomotives  which  once  were  made  only  by  artisans.  Thousands 
are  employed  in  factories  for  making  cloth,  who  never  would  have 
been  employed  if  all  the  processes  of  making  were  undertaken  by 

*  Thornton,  on  Labor,  p.  319. 


EFFECT    OF     MACHINERY     ON     LABOR. 


45 


one  person.  Machinery  has  introduced  an  infinite  number  of  sim- 
ple processes. 

In  respect  to  the  increased  pay  derived  from  working  machinery, 
it  is  difficult  to  give  figures  without  a  great  deal  of  explanation, 
because  the  price  of  wages  has  been  increased  from  other  causes 
besides  this.* 

From  these,  and  many  other  facts,  it  is  clear  that  machinery  is 
not  the  enemy  of  workmen.  Let  the  opposition  to  its  introduction 
cease.  May  the  workman  continue  to  apply  his  skill  in  producing 
new  machinery  and  in  running  the  old,  with  the  confident  hope 
that  he  is  sure  of  earning  his  bread  and  robbing  no  one  of  it,  not 
less  when  he  works  with  the  mute  wisdom  of  machinery,  than 
when  wearing  out  his  own  fingers.  "  No  trades-unions,"  says  Ed- 
mund Potter,  "  ever  encouraged  invention."  This  is  a  sad  fact. 
Machinery  has  brought  a  thousand  comforts  to  millions  who  would 
otherwise  have  been  denied  them,  and  what  workman  to-day  can 
trace  his  lack  of  employment,  if  out  of  it,  to  the  introduction  of 
machinery  ? 

It  may  be  asked,  will  not  the  augmented  power  of  machinery 
ultimately  reduce  the  quantity  of  labor.  We  think  not.  It  cer- 
tainly will  in  particular  employments,  but  the  labor  thus  released 
will  take  up  new  occupations.     The   demand    for   most   things   has 

*    In  Porter's  Progress  of  the  Xntioii,  p.  197,  he  gives  an  interesting  table  of  the  prices  of  the 
wages  of  spinners,  and  their  cost  of  living  for  a  long  period,  which  we  quote : 

Week's  Net  earnings 
Hours  oj 
■work 
per  iveck. 

74 
74 
74 
74 
69 
69 


Work  0/ Spinner. 

Wages 

Years. 

per  week. 

per  week. 

Lbs. 

Nos. 

s.  d. 

1804, 

12 

180 

..         32  6         • . 

1804, 

9 

200 

36  6 

1814, 

18 

180 

44  6 

1814, 

13^^ 

200 

60  0 

1833, 

22>^ 

180 

■ •         33  8         . . 

1833. 

19 

200 

4=  9 

Flour 

Flesh 

would  purchase 

per  sack. 

per  lb. 

Lbs.       Lbs. 

s.  d. 

Flour.  Flesh. 

83  0 

..td.  to  qd.  . 

117     .     62}^ 

83  0 

6  to  7 . 

124      ■      73 

70  6 

8 

■75     •     67 

706 

8 

239      .     90 

45  0 

6 

210     .     67 

45  0 

6         . 

267     .     85 

46  EFFECT     OF     MACHINERY     ON     LABOR. 

a  practical  limit,  and  when  production  reaches  that,  it  must  stop. 
That  over-production  is  not  possible  in  all  branches  of  industry  at 
once,  though  possible  in  some,  is  a  doctrine  which  few,  if  any, 
will  deny.  But  human  wants  cannot  cease  entirely  so  long  as 
man  lives. 

Another  effect  springing  from  the  invention  and  use  of  ma- 
chinery is  the  rise  of  large  factories.*  Machinery  first  diminishes 
labor  and  increases  gains,  unless  the  price  of  the  thing  sold  is  re- 
duced correspondingly  with  the  diminished  cost  of  production. 
Sometimes,  a  manufacturer  prefers  to  sell  at  the  old  price  and  in- 
crease his  profits  in  that  way ;  sometimes,  by  reducing  the  price  and 
stimulating  the  demand.  His  preference  will  be  for  that  way 
which  is  likely  to  yield  him  the  greatest  profits.  If  the  demand 
increases,  as  in  many  things  it  does,  whether  prices  are  reduced 
or  not,  the  manufacturer  enlarges  his  factory  to  produce  more  and 
enhance  his  profits.  This,  of  course,  does  not  logically  follow,  but 
if  a  business  is  profitable  in  the  beginning  and  machinery  is  in- 
vented whereby  the  profits  are  increased,  generally  the  manufac- 
turer increases  his  capacity  for  production  to  that  point  where  he 
can  manufacture  at  the  greatest  profit;  extending  his  business  so 
far  as  to  be  dependent  upon  the  smallest  number  not  employed  by 
himself  in  producing  his  wares.  For  example,  some  of  the  rail- 
roads are  constructing  rolling  mills  to  produce  their  own  rails,  be- 
cause it  is  cheaper  than  to  buy  of  others.  This  practice  of  extend- 
ing the  manufacture  of  things  so  as  to  cover  as  many  processes  as 
possible,  is  growing  every  day.  A  lock  manufacturer,  for  example, 
instead  of  purchasing  his  castings  of  another,  will  make  them  him- 
self And  thus  the  process  goes  on  of  combining  more  and  more, 
under  the  ownership  of  one  person,  the  different  processes  involved 
in  a  given  product. 

*    See  IVesi.  Rev.,  vol.  81,  p.  164,  Am.  ed. 


EFFECT     OF     MACHINERY     ON     LABOR.  47 

It  is  not  within  our  purpose  to  state  how  far  this  combination 
of  processes  has  been  carried,  but  simply  the  effect  of  it,  both 
upon  workmen  and  the  pubhc. 

One  effect  is  a  tendency  to  diminish  the  price  of  manufactured 
products.  Why  does  the  lock  manufacturer  make  his  castings  in- 
stead of  purchasing  them  of  the  foundryman  ?  Either,  because  he 
can  make  better  ones  at  the  same  price,  or  similar  castings  at  a 
lower  price.  In  short,  because  he  can  save  money  by  the  opera- 
tion. If  he  can,  he  can  afford  to  sell  his  wares  at  a  reduced 
price.  Whether  he  will  or  not  depends  upon  the  state  of  facts 
previously  indicated — whether  he  can  make  more  by  selling  the 
same  quantity  at  larger  profits,  or  a  larger  (quantity  at  profits  re- 
duced. A  combination  of  processes  generally  tends  to  a  reduction 
of  the  price  of  things. 

Again,  if  the  price  is  not  diminished  in  the  first  instance,  the 
great  gains  realized  tempt  others  to  rush  into  the  business,  unless 
it  be  a  legal  monopoly,  and,  through  force  of  competition,  prices 
are  diminished. 


V. 


ON  THE  MEANING  AND  CAUSES  OF 
VALUE. 


The  saying  is  reported  of  Prodicus,  the  master  of  Socrates, 
that  "  a  right  use  of  words  is  the  beginning  of  knowledge."  Yet 
words  rightly  used  are  very  imperfect  signs  to  express  ideas.  The 
same  words,  phrases,  and  sentences  convey  dissimilar  notions  to 
different  persons  and  there  is  no  way  of  overcoming  the  difficulty. 

Words  are  absolutely  necessary  for  the  conveyance  of  ideas,  and 
a  definition  is  nothing  more  than  a  combination  of  them.  How- 
ever imperfect,  therefore,  definitions  may  be,  no  progress  in  the 
acquisition  of  knowledge  can  be  made  without  them. 

Acting  upon  the  principle  enunciated  by  Prodicus,  the  Greek 
school  of  sophists,  led  principally  by  himself,  Protagoras,  and 
HiPPiAS,  devoted  themselves  to  the  study  of  words  with  great 
assiduity,  and  the  flowering  of  this  impulse  is  found  in  the  works 
of  Aristotle,  whose  temiinology  is  exceedingly  clear.*  Great 
attention  was  paid  to  this  subject  till  the  time  of  Descartes,  who 
went  to  the  other  extreme  and  declared  that  words  had  no  fixed 
meaning  at  all.t 

*  See  Grant's  Aristotle,  vol.  i,  pp.  81-9. 
'l  Hallam,  Lit.  0/  Etirope,  vol.  i,  loi. 


ON  THE  MEANING  AND  CAUSES  OF  VALUE.         49 

A  complete  dictionary  would  comprise  the  sum  total  of  human 
knowledge.  Such  a  work  is  like  a  great  field,  each  word  answer- 
ing to  a  lot,  and  the  entire  number  of  lots  comprising  the  whole 
field.  Now,  as  additional  fences  may  be  built,  or  old  ones  pulled 
down,  so  that  the  lots  may  become  smaller  or  larger,  words  may 
be  defined  as  having  a  narrower  or  wider  meaning.  Indeed,  one 
might  continue  to  widen  the  meaning  of  a  word  till  the  whole 
circle  of  human  knowledge  was  embraced  within  it. 

Let  the  reader  think  this  subject  over  carefully  and  he  cannot  fail 
to  reach  the  conclusion  that  a  definition  is  an  elastic  thing,  stretched 
by  one  and  contracted  by  another — an  arbitrary  proceeding  which 
cannot  be  changed.  The  most  that  can  be  said  for  the  definition 
of  a  thing  is,  that  more  persons  will  define  or  describe  it  in  one 
particular  way ;  it  is  the  number  and  quality  of  noses  assenting  to 
a  given  definition  which  render  it  more  authoritative  than  another; 
but  there  is  no  test  by  which  a  definition  can  be  declared  true, 
whatever  be  the  authority  assenting  to  it.  Yet  the  farmer  must 
fence  his  land  to  indicate  where  it  is,  so  words  must  be  defined, 
bounded,  to  give  them  any  significance. 

As  value  is  the  root-term  of  economic  science,  it  is  necessary  to 
define  the  meaning  in  which  it  is  to  be  used.  Whether  corres- 
ponding to  the  meaning  given  by  others  or  not,  such  a  course  is 
necessary  in  order  to  make  any  ])rogress  witii  the  several  topics 
we  propose  to  consider.  Were  this  not  done,  we  should  be  as 
completely  lost  as  a  shi])  at  sea  upon  a  starless  night,  without 
compass  or  guide  to  point  the  way. 

Although  the  term  ''value"  plays  a  most  conspicuous  i)art  in 
political  economy,  yet  many  economic  writers  have  neglected  to 
define  it  carefully,  as  though  the  term  were  of  little  importance. 
In   consequence   of   this    neglect,  they  have   greatly  multiplied    the 

5 


50  ON     THE     MEANING     AND     CAUSES     OF     VALUE. 

errors   to   be    found    in    this   department  of  study,  which  were   nu- 
merous enough  before. 

At  the  outset,   we  remark  that  value  is  not  a  quahty  inhering  in 
any    object    whatever.      This    truth    will    appear   very    clearly    from 
Professor    Perry's    illustration.     "  If   I    take  up   a   new  lead-pencil 
from    my  table,  for    the    purpose    of   examining    all    its    qualities,   I 
shall    immediately  perceive    those   which    are  visible   and    tangible. 
The  pencil  has  length,  a  cylindrical  form,  a  black  color,  is  hard  to 
the  touch,  is  composed  of  wood  and  plumbago  in  certain  relations 
to  each  other,  and  has  the  quality,  when  sharpened  at  the  end,  ot 
making  black  marks  upon  white    paper.     These  qualities,  and  such 
as  these,  may  be  learned  by  a  study  of  the  pencil  itself.     But  can 
I  learn,  by  a  study  of  the    pencil  itself,  the   vahie   of   the    pencil  ? 
Is  value  a  quality  ?     By  any  examination  of  its  mechanical,  or  by 
any  analysis    of   its    chemical,  properties,  can    I    detect    how  much 
the   pencil    is  luortli  ?     No.     The   questioning   of  the   senses,  how- 
ever  minute,  the    test  of  the    laboratory,  however    delicate,  applied 
to  the   pencil    alone  can  never  determine    how  much  it  is  worth."* 
Value,  then,  is  not  a  quality  of  a   thing.     It    can    never    be    found 
in    any  object.      The    mistakes   of  economists  who    have    not    kept 
this  truth  clearly  in  view  have  jjeen  most  deplorable. 

Before  going  further  towards  finding  out  the  meaning  of  value, 
let  us  stop  to  define  utility.  This  is  the  capacity  of  an  object  to 
satisfy  the  desire  of  its  possessor.  But  the  utility  here  meant  is 
not  "  that  utility  which  is  determined  by  reason  and  measured  by 
a  philosophical  standard."!  If  an  object  has  capacity  to  .satisfy 
the  desire  of  its  possessor,  however  strong  or  weak,  however  de- 
praved or  elevated  the  desire  may  be,  that  object  has  utility.  In 
this    sense    of    the    word,    which    is    the    etymological    one,    ardent 

*  Elements  of  Polit.  Econ.,  p.  46.      t  Bowen,  Am.  Folit.  Econ.,  p.   72. 


ON  THE  MEANING  AND  CAUSES  OF  VALUE. 


51 


spirits  have  utility  the  same  as  wheat.  An  obscene  book,  so  long 
as  it  satisfies  desire,  has  utihty, — like  the  Bible  which  satisfies  the 
longing  of  many  a  soul.  The  same  thing  may  have  no  utility 
to  one  man,  a  low  utility  to  another,  and  a  very  high  utility  to  a 
third.  That  is,  it  has  no  capacity  to  satisfy  the  desire  of  the 
first,  a  slight  capacity  to  satisfy  the  desire  of  the  second,  but  a 
very  high  capacity  to  satisfy  the  desire  of  the  other.* 

Utility  must  be  carefully  distinguished  from  exchangeability. 
Utility  is  the  capacity  of  an  object  to  satisfy  the  desire  of  its 
owner ;  exchangeability  is  the  capacity  of  an  object  to  satisfy  the 
desire  of  one  not  the  owner,  combined,  also,  with  his  ability  to 
purchase  it.  Hence,  an  object  may  have  utility  even  though  no 
one  besides  the  owner  ever  hears  of  its  existence;  an  object  never 
has  exchangeability  unless  known  to  and  desired  by  another. 

An  article  may  possess  both  exchangeability  and  utility.  This 
is  often  the  case.  Thus  gold  is  exchangeable,  for  it  may  be 
desired  by  another;  and  also  useful,  for  the  owner  may  wear 
it  as  ornament  or  otherwise,  or  manufacture  it  into  watches, 
jewelry,  and  the  like.  Having  cleared  up  the  meaning  of  these 
terms,  let  us  proceed  on  our  way  towards   defining  value. 

When  Robinson  Crusoe  recovered  from  his  shipwreck,  he  found 
that  he  was  the  sole  owner  and  occupant  of  a  comfortable  and 
fertile  island.  There  was  al)undance  for  food  and  clothing ;  he 
easily  provided  himself  with  a  house  for  shelter  and  habitation. 
Yet  all  these  possessions  had  no  value.  They  had  utility,  for  they 
could  satisfy  his  wants.  Indeed,  they  were  (piite  as  useful  to 
him  as  if  he  and  they  had  been  in  Knci.ano.  Their  utility  was 
great,  their  value  nothing ;  why  did  they  not  have  value  ?  The 
presence  of  some  other  person  was  necessary   having  exchangeable 

*  See    Perry's   El.    0/  Polit.  Eco>i.,  p.  72. 


52  ON     THE     MEANING     AND     CAUSES     OF     VALUE. 

objects,  and  wanting  also  some  of  Crusoe's  things;  and  further, 
an  exchange  must  have  actually  taken  place  before  the  com- 
modities of  either  person  could  have  had  any  value.  If  people 
living  in  the  same  community,  and  owning  different  commodities, 
never  exchanged  them  with  each  other,  such  commodities  would 
h9.ve  no  value.  Commodities  cannot  have  value  unless  their 
owners  exchange  them  with  one  another  for  those  things  which 
they  desire,  but  have  not.  Consequently,  Crusoe's  possessions  had 
no  value,  because  he  owned  everything  and  was  alone.  If  another 
person  had  lived  there,  having  various  things  Crusoe  wanted,  and 
which  could  have  been  obtained  by  exchanging  a  part  of  his  own 
for  them,  then  the  values  of  the  several  commodities  exchanged 
could  have  been  ascertained.  Hence  we  find  that  the  value  of  a 
commodity  is  an  estimate  agreed  to  between  the  person  parting 
with  and  the  person  receiving  it. 

In  what  words  or  terms  is  this  estimate  or  value  expressed  ^ 
x\  has  a  hat  and  B  a  pair  of  shoes.  Each  wishes  to  exchange 
his  product  for  that  of  the  other.  After  considerable  discussion, 
in  which  A  declares  that  he  ought  to  have  more  than  the  shoes 
for  his  hat,  it  is  agreed  that  each  shall  exchange  his  product  for 
that  of  the  other.  The  value  of  the  hat,  therefore,  is  expressed 
by  the  shoes;  thus  the  hat  is  said  to  be  worth  the  pair  of  shoes; 
and,  likewise,  the  shoes  are  worth  the  hat.  The  value  of  each 
product  is  expressed  by  the  other.  Thus,  our  conception  of  value  is 
now  complete,  and  may  be  expressed  in  the  following  manner: 
Value  is  the  estimate  agreed  to  between  the  person  parting  with, 
and  the  person  receiving  a  commodity,  expressed  in  some  other 
commodity  that  is  exchanged  for   it.* 

*  When    one   commodity  is  exchanged    for    another,  each  measures   the  value  of  the  other. — 
J.  R.  McCulloch,  Encyc.  Brit.,  Art.  Money. 


ON  THE  MEANING  AND  CAUSES  OF  VALUE.  53 

This  definition  of  value  will  be  easily  apprehended.  It  will  be 
seen  that  value  does  not  reside  in  a  commodity ;  it  is  an  estimate 
or  affection  of  the  mind.  It  is  not  an  estimate  made  by  one  per- 
son, however,  but  by  two  or  more — by  all  the  parties  owning  the 
several  articles  that  are  exchanged.  Nor  is  an  estimate  ever  the 
value  of  anything  unless  an  exchange    actually  takes  place. 

Hence,  an  ex  parte  estimate,  i.  e.,  the  estimate  of  one  person, 
or  the  estimates  of  persons  who  are  not  the  owners,  can  never  be 
considered  as  the  value  of  anything.  True,  we  can  tell  what  the 
value  of  a  commodity  was  at  the  time  of  the  last  exchange,  as  ex- 
pressed in  the  commodity  exchanged  for  it.  We  can  tell  what  it 
probably  will  exchange  for  at  some  future  time.  And  this  is  our 
meaning  when  we  say  that  a  commodity  is  worth  a  certain  sum 
or  thing.  We  mean  that  it  was  exchanged  for  some  other  thing,  or 
can  be  exchanged  for  it  at  some  future  time.  So  the  merchant, 
conscious  of  this  truth,  can  calculate  with  a  reasonable  degree  of 
certainty  upon  the  wants  of  his  customers,  and  what  he  can  prob- 
ably get  for  his  goods.  And  because  the  values  or  estimates 
men  put  upon  things  undergo  but  little  change  they  can  buy  and 
sell,  and  engage  in  commerce  in  the  most  distant  parts  of  the 
earth.  Yet  how  often  men  fail  to  discern  the  varying  and  capricious 
values  or  estimates  that  will  be  put  upon  things,  is  a  matter  of 
common  experience. 

MACLEOD  has  done  much  to  clear  up  the  meaning  of  value,  yet 
he  has  made  some  mistakes.  Thus,  he  says  that,  "  however  much 
a  person  may  wish  to  sell  any  product  of  his  own,  yet,  if  no  one 
will  buy  it,  it  has  no  value.  If  an  exchange  takes  place,  it  can 
only  do  so  from  the  reci[)rocal  desire  of  each  for  the  product  of 
the  other.  Hence,  it  is  clear  that  value  necessarily  irquirrs  the 
amcurrence  of  two  minds."*      It  is  a  little  singular,  however,  that  he 

*  Theory  and  rractice  of  Banking,  vol.   1,  p.    14. 


54  "^N  THE  MEANING  AND  CAUSES  OF  VALUE. 

should  have  written  the  following  sentence  just  before  those  quoted : 
"  We  may  observe  that  since  a  thing  which  cannot  be  exchanged 
has  no  value,  the  value  of  anything  depends  not  upon '  the  per- 
son who   offers  it  for  sale,  but    upon    the   desire   of  the    purchaser." 

Is  not  this  equivalent  to  saying  that  the  value  of  a  thing  de- 
pends upon  the  desire  of  the  purchaser  ?  And  is  not  this  state- 
ment directly  opposed  to  the  one  previously  quoted,  namely, 
"  that    value    necessarily    requires    the    concurrence     of   two  minds, 

and  that  if  an  exchange  takes   place,  it  can  only    do 

so  from  the  reciprocal  desire  of  each  for  the  product  of  the 
other "  ?  Before  an  exchange  can  take  place,  there  must  be  a 
meeting  of  minds ;  which  person  has  the  strongest  desire  to  ex- 
change is  often  difficult  to  tell,  for  each  generally  tries  to  conceal 
his  desires  in  part,  at  least,  in  the  hope  of  making  a  better  ex- 
change. Suppose  the  purchaser  is  in  great  want  of  bread,  and  the 
seller  knows  it,  will  not  the  latter  use  his  information  to  increase 
the  value  or  estimate  of  his  bread  ?  Or  suppose  a  dealer  has 
some  article  on  hand  like  perishable  fruit,  which  he  is  very 
desirous  to  dispose  of,  will  not  the  purchaser  often  use  his 
knowledge  to  reduce  the  value  of  the  fruit  ?  Consequently,  the 
statement  is  a  mistake  that  "  the  value  of  anything  depends,  not 
upon  the  person  who  offers  it  for  sale,  but  upon  the  desire  of  the 
purchaser."  It  depends  upon  the  desires  of  both;  which  of  them 
has  the  strongest  or  weakest   desire  cannot  easily  be  told. 

An  invariable  standard  of  value  is  impossible.  For,  supposing 
that  the  values  of  two  commodities  have  changed  relatively  to 
each  other  since  a  former  exchange,  in  which  commodity  has  the 
change  taken  place  ?  Thus,  suppose  a  bushel  of  wheat  was  ex- 
changed for  a  dollar  of  gold  last  year,  and  that  two  bushels  must 
be  given  for  a  dollar  this.     Has  the  gold  risen  in    value  or  that  of 


ON  THE  MEANING  AND  CAUSES  OF  VALUE.  55 

the  wheat  declined  ?  It  is  no  nearer  the  truth  to  say  that  the  wheat 
has  dechned  than  that  the  gold  has  risen.  Suppose  that  ten  com- 
modities have  each  been  exchanged  for  the  same  amount  of  gold 
for  a  hundred  years.  This  year,  however,  one  of  them,  sugar,  for 
example,  is  exchanged  for  twice  as  much  gold  as  ever  before.  Has 
sugar,  therefore,  risen  in  value,  or  has  the  value  of  gold  declined  ? 
Put  any  examples  you  like,  it  will  always  be  found  that  value  is  a 
relative  expression,  and,  consequently,  that  no  object  can  ever  have 
a  greater  or  less  value  than  that  with  which  it  is  compared  and 
exchanged.  Professor  Favvcett  has  stated  this  truth  correctly ; 
"  When  the  general  value  of  a  commodity  declines,  less  of  every 
commodity  can  be  obtained  for  it  in  exchange ;  but  if  this  be  so, 
the  value  of  all  these  commodities  must  rise,  when  compared  with 
the  particular  commodity  in  the  value  of  which  it  has  been  sup- 
posed a  general  decline  has  taken  place.  These  considerations 
demonstrate  the  erroneous  nature  of  a  statement  not  unfrequently 
made,  that  there  is  a  general  rise  or  fall  in  the  value  of  all  com- 
modities  It  is  quite  impossible  that  there  should  be  a  gene- 
ral rise  of  values,  for  if  there  is  a  rise  in  the  value  of  one  com- 
modity, there  must  be  a  fall  in  the  value  of  all  the  commodities 
with  which  this  one  is  compared."*  The  works  of  Adam  Smith 
and  Ricardo  are  badly  infected  with  error  in  consequence  of  their 
failure  to  see  this  truth,  lioth  sought  after  an  invariable  standard 
of  value,  which  every  living  political  economist  admits  cannot  be 
found. 

Before  quitting  this  branch  of  our  sul)ject  we  may  define  the 
meaning  of  price.  It  is  the  value  of  a  commodity  expressed  in 
money.  Thus  Bascom  says  that  "  the  i)rice  of  anything  is  its 
l)ower  to  command  gold,  silver,  or  that  which  constitutes  the    cur- 

*  Manual    nf  Polit.    Econ.    p.    270. 


56  ON  THE  MEANING  AND  CAUSES  OF  VALUE. 

rency  of  the  country.    Value  may  be  expressed  in  any  commodity 
whatever:    price  is  expressed  in  one  commodity   only."* 

We  are  now  ready  to  consider  the  causes  of  value.  What  are 
the  causes  leading  men  to  agree  to  the  values  of  articles  bought 
and  sold  ? 

It  has  been  the  custom  among  political  economists  to  treat 
of  the  causes  of  value  instead  of  those  of  price,  yet  as  ex- 
changes in  all  civilized  countries  are  generally  expressed  in 
money,  our  investigation  will  be  simplified  if  we  consider  the 
causes  of  price  rather  than  those  of  value.  In  so  doing,  this  as- 
sumption is  involved,  which  must  be  kept  in  view,  that  when  the 
price  of  a  commodity  varies,  the  variation  is  always  supposed  to 
be  produced  by  something  which  affects  the  value  of  the  commodity, 
and  not  the  value  of  money.  Let  us  explain  our  meaning  by  an 
illustration.  Suppose  it  is  observed  that  the  price  of  wheat  rises  ; 
this  rise  in  the  price  of  wheat  may  be  due  to  two  very  distinct 
causes.  In  the  one  case  wheat  may  become  scarcer,  and  therefore 
dearer;  in  the  other  case,  wheat,  in  common  with  every  other 
commodity,  may  rise  in  price,  in  consequence  of  new  discoveries 
of  the  precious  metals,  such  as  those  made  in  Australia  and 
California  during  the  last  few  years.  In  the  following  investiga- 
tion, the  assumption  is  made  that  variations  in  price  are  not 
caused  by  an  alteration  in  the  value  of  money. 

What,  then,  are  the  causes  of  price  ?  They  are  four,  namely, 
difficulty  of  attainment,  exchangeability,  personal  effort,  and  willing- 
ness of  deprivation. 

By  difficulty  of  attainment  is  meant  the  labor  or  other  difficulty 
inhering  in,  or  connected  with,  a  commodity  which  a  person  who 
is  not   the   owner   desires,  and  which  he  had  rather  buy  than  per- 

''  Polit.   Econ.,  p.  222. 


ON     THE     MEANING     ANP     CAUSES     OF     VALUE.  57 

form  the  labor  of  attaining  directly  himself.  Hence,  if  an  object 
having  capacity  to  satisfy  the  desire  of  another  cannot  be  had  with- 
out difficulty,  it  is  valuable,  provided  the  person  desiring  it  be  of 
sufficient  ability  to  pay  for  it.  But  if  a  commodity  has  no  capac- 
ity to  satisfy  the  desire  of  another,  or  if,  having  a  capacity,  the 
commodity  can  be  had  without  difficulty,  it  has  no  value.  A  man 
living  in  the  country  may  suddenly  find  the  waters  of  his  well  dried 
up.  To  him,  therefore,  water  has  become  exchangeable.  Yet  it 
may  have  no  value  because  he  can  get  it  of  his  neighbor  by  a  very 
slight  personal  effort.  He  goes  to  the  city  to  live.  Here  he  wants 
water  as  before,  but  he  finds  that  he  cannot  get  it,  by  simply 
going  to  his  neighbor's  well.  He  cannot  get  it  by  direct  personal 
effort  without  going  a  considerable  distance  beyond  the  city. 
Rather  than  go  so  far,  he  is  willing  to  pay  some  one  for  it  in 
order  to  have  it.  Consequently  the  water  paid  for  has  value,  be- 
cause it  could  not  be  had  without  an  eftbrt, — without  difficulty  of 
attainment, — which  the  person  had  rather  pay  for  than  make 
directly  himself. 

Whenever  an  exchange  actually  takes  place,  price  expresses  or 
measures  this  difficulty.  If  I  pay  seventy-five  dollars  for  a  watch, 
the  money  expresses  or  represents  the  difficulty  of  attaining  it, — in 
other  words,  the  labor  expended  in  making  it ;  I  had  rather  pay 
this  money  for  the  labor  of  another  than  make  the  watch  myself. 
Whenever  an  exchange  does  not  take  place,  difficulty  of  attainment 
is  only  another  expression  for  the  labor  enhancing  the  exchange- 
ability of  an  object.  Yet  labor  does  not  always  render  an  object 
more  exchangeable.  A  man  may  build  a  house  in  the  wilderness 
at  vast  expense,  nevertheless  it  may  have  no  exchangeability,  be- 
cause no  one  has  such  tastes  and  desires  as  the  builder. 

It  is  most  important  to  remember  when    difficulty  of  altaimncnt 


58  ON  THE  MEANING  AND  CAUSES  OF  VALUE. 

is  used  as  an  equivalent  or  measure  of  price,  and  when  it  is  used 
as  expressing  simply  the  labor  bestowed  upon  an  object. 

The  second  cause  determining  price  is  exchangeability.  This  we 
have  previously  defined  as  the  capacity  of  an  object  to  satisfy  the 
desire  of  one  who  is  not  the  owner.  Now  it  is  evident  that  when- 
ever the  desires  of  men  change,  the  capacity  of  things  to  satisfy 
their  desires  changes  also.  Moreover,  it  is  exceedingly  difticult, 
indeed  it  is  impossible,  to  find  out  all  the  causes  which  create  and 
influence  the  desires  of  men.  The  causes  are  varied,  often  occult, 
unknown. 

To  A,  a  fine  picture  is  worth  $  5,000  ;  to  B,  not  half  that  sum. 
Various  reasons  may  be  given  for  the  different  estimates  of  the 
picture.  A  perhaps,  has  a  finer  taste  for  art,  or  appreciation  of 
the  particular  picture.  He  may  think  it  will  become  more  valu- 
able with  age,  or  that  the  genius  of  the  artist  will  become  more 
fully  recognized  in  the  future.  The  causes  operating  upon  desires 
are  too  obscure  often  to  be  determined.    • 

The  paradoxical  proposition  has  found  defenders,  that  not  only 
does  price  depend  upon  exchangeability,  but  that  exchangeability 
depends  upon  price.  This  paradox  does  not,  we  think,  exist ;  nor 
would  it  ever  have  been  declared  true,  if  the  distinction  between 
difficulty  of  attainment  as  an  equivalent  of  price  and  as  another 
expression  for  labor  had  been  kept  in  view.  Suppose  a  man  is 
trying  to  find  a  house,  with  the  intention  of  purchasing.  After 
looking  at  several  houses,  he  finds  such  an  one  as  he  wants.  It 
is  an  expensive  place ;  the  grounds  are  laid  out  with  great  care 
and  skill.  It  is  the  taste  and  labor  displayed  about  the  place 
that  render  it  so  exchangeable.  Satisfied  that  it  is  the  place  he 
wants,  he  inquires  the  price.  He  has  never  thought  of  the  price 
the  owner  would  ask  till  now.     Suppose  the  owner  is  unwilling  to 


ON     THE     MEANING     AND     CAUSES     OF     VALUE.  59  ' 

sell  the  house  except  at  an  enormous  price  which  the  other  is  un- 
willing to  pay.  The  purchaser  has  the  means  to  buy,  but  he  is 
unwilling  to  pay  so  much.  Perhaps  he  thinks  the  owner  is  trying 
to  drive  a  sharp  bargain  with  him.  He  turns  away  disappointed ; 
afterwards  he  learns  that  the  owner  is  willing  to  sell  at  a  greatly 
reduced  i)rice.  He  purchases  the  house.  Yet  during  all  the  time 
between  the  first  examination  of  the  house  and  the  purchase  of  it, 
its  exchangeability  was  unchanged.  Hence  it  is  clear  that  the 
exchangeability  of  objects  is  not  affected  by  their  price ;  but 
whether  exchanges  actually  take  place  or  not,  these  depend  upon 
the  price  of  the  things  exchanged.  Take  peaches,  for  example. 
When  they  are  first  brought  to  market,  many  say:  "We  will  not 
buy  now,  we  will  wait  till  the  price  is  lower."  They  want  them 
in  the  beginning  just  as  much  as  afterwards,  perhaps  more.  '^Fheir 
exchangeability  is  the  same  from  the  first  to  the  last  of  the  peach 
season ;  though  not  many  exchanges  are  made  till  prices  fall  to  a 
certain  point. 

There  are  many  rocks  unseen  when  the  waters  are  high,  that 
appear  when  the  waters  recede.  Yet  the  rocks  are  there,  whether 
the  waters  are  high  or  low.  So  with  our  desires.  They  are  as 
real  when  prices  are  so  high  that  no  exchanges  are  made,  as 
when  prices  are  low  and  exchanges  frequent.  The  only  difference 
is,  that  when  the  prices  of  things  rise  above  a  certain  point,  the 
desires  of  men  for  them  are  unknown  to  the  world ;  when  prices 
fall  below  a  certain  point,  the  desires  of  men  are  found  out 
through  their  efforts  to  gratify  them. 

There  is  one  class  of  commodities,  the  exchangeabihty  of  \vhi(  h 
depends  primarily  u])on  their  value.  l\ciiK'nil)criiig  thai  utility  is 
the  capacity  of  an  object  to  satisfy  the  desire  of  its  possessor,  we 
remark    that   some    commodities   have    utility  solely  on    account   of 


•6o  ON     THE     MEANING     AND     CAUSES     OF     VALUE. 

their  value.  Thus  a  diamond  is  useful  at  the  present  time  because 
it  has  capacity  to  satisfy  desire.  Let  diamonds  become  plentiful, 
however,  and  not  only  would  their  value  vanish,  but  their  utility 
also.  Nobody  would  want  them.  Now  it  may  be  properly  said 
that  those  articles  which  are  useful  simjjly  because  they  are  valua- 
ble are  only  exchangeable  for  a  like  reason.  But  all  other  com- 
modities are  exchangeable  because  of  the  labor  or  other  difficulty 
connected  with  them.  This  is  the  cause  which  renders  them  ex- 
changeable. Yet  the  value  of  the  diamond,  so  long  as  it  has  any, 
is  measured  or  estimated  by  difficulty  of  attainment  like  other 
commodities.* 

A  third  cause  determining  price  is  personal  effort.  This  is  one 
of  the  causes  fixing  the  extremes  of  price.  Thus  suppose  a  pur- 
chaser is  seeking  for  a  chair.  He  goes  into  a  store,  and  finding 
one  that  he  likes,  inquires  the  price.  Being  told  that  it  is  ten 
dollars,  he  remarks  that  he  will  not  give  so  much,  and  that  if  the 
dealer  will  not  sell  it  for  nine  dollars,  he  will  make  one  himself 
Personal  effort,  therefore,  is  the  cause  that  fixes  the  highest  price 
for  the  chair.  As  it  is  a  cause  determining  the  highest  price  of 
things,  so  likewise  does  it  determine  the  lowest. 

What  do  we  mean  by  the  highest  and  lowest  price  of  a  com- 
modity ?  The  first  term  is  easily  enough  understood.  The  high- 
est price  is  the  most  which  a  purchaser  will  pay  for  a  thing. 
What  is  meant  by  the  lowest  price  ?  The  least  that  the  dealer  ac- 
tually will  sell  for,  and  at  which  he  must  sell,  else  the  purchaser 
will  obtain    the  thing  desired  by  a  direct  personal  effort. 

*  This  was  the  assertion  really  made  by  Bastiai  in  his  Harmonies  of  Political  Economy,  and 
which  Professor  Cairnes  has  attacked.  Fort.  Rev.,  vol.  xiv,  p.  424.  But  the  error  into  which 
we  think  the  latter  has  fallen  is  in  considering  the  difficulty  of  attainment  paid  for  as  the  diffi- 
culty expended  by  the  finder  of  the  diamond.  This  is  only  a  partial  consideration  of  the  whole 
fact  The  price  paid  for  the  diamond  measures  the  difficulty  of  attainment  which  the  purchaser 
had  rather  pay  for  than  undertake  himself.  That  is  to  say,  the  difficulty  actually  paid  for  is 
the  one  which  the  purchaser  himself  would  probably  have  to  overcome  in  order  to  find  the 
diamond. 


ON  THE  MEANING  AND  CAUSES  OF  VALUE.         6 1 

Willingness  of  deprivation  is  the  fourth  and  last  cause  deter- 
mining price.  When  vulcanized  rubber  goods  were  first  made, 
they  constituted  a  monoply  as  long  as  the  patent  existed,  so  that 
no  one  could  make  them  except  the  patentee  and  those  whom  he 
permitted.  A,  the  purchaser,  desires  a  pair  of  boots,  but  B,  the 
monopolist,  will  not  sell  them  for  less  tlian  ten  dollars.  A's  un- 
willingness to  be  without  the  boots  leads  him  to  give  this  price. 
But  he  would  give  no  more.  Either  he  would  get  them  by  per- 
sonal effort  (supposing  that  he  could  make  them),  or  he  would 
deprive  himself  of  them  rather  than  buy  at  a  higher  price.  Thus 
we  see  that  A's  personal  effort,  or  willingness  of  deprivation,  de- 
termined the  highest  price  which  he  would  pay  for  the  boots.  The 
same  causes  may  determine  their  lowest  price.  The  monoply  has 
expired.  A  wishes  another  pair.  Now  he  tells  B  that  he  will  not 
give  him  only  four  dollars  a  pair.  Why  not  ?  Why  is  he  willing 
to  deprive  himself  of  them  if  he  cannot  purchase  at  that  price  ? 
Because  he  believes  he  can  buy  elsewhere  for  the  price  offered. 
Willingness  of  deprivation,  therefore,  is  a  cause  determining  price, 
for  no  exchange  can  take  place  unless  the  price  comes  within  the 
limits  which  men   will  pay. 

Moreover,  willingness  of  deprivation  cannot  be  resolved  into 
any  other  cause  of  price.  It  is  easily  distinguished  from  exchange- 
ability, for  that  «iualily  may,  as  we  have  seen,  inhere  in  an  object 
after  willingness  of  deprivation  has  ])revented  a  transfer  of  the 
ownership  thereof 

Let  us  now  inquire  when  the  highest  and  lowest  prices  are  paid 
tor  things;  and,  also,  what  is  the  reasonable  price  towards  which 
all  things  are  tending. 

First,  whenever  a  commodity  constitutes  a  monoply,  then  the 
highest  price  is  paid  for  it. 


62         ON  THE  MEANING  AND  CAUSES  OF  VALUE. 

Secondly,  whenever  the  supply  of  a  commodity  is  unhmited, — 
that  is,  when  it  can  be  produced  without  increase  of  cost, — then 
the  lowest  price  is  paid  for  it. 

Thirdly,  the  reasonable  price  of  a  commodity  is  the  cost  of  pro- 
duction, by  which  is  meant  the  money  paid  for  labor,  material, 
etc.,  together  with  a  reasonable  sum  for  profits. 

Let  us  test  the  correctness  of  these  principles  by  applying  them 
to  actual  exchanges. 

Formerly,  the  screw  part  of  the  metal  screw  had  a  flat  end,  so 
that  a  hole  had  to  be  made  in  the  wood  previous  to  the  insertion 
of  the  screw.  In  1846,  a  screw  was  invented  having  a  point  like 
a  gimlet,  which  could  be  inserted  into  pine  and  other  soft  woods, 
such  as  are  most  commonly  used,  without  first  making  a  hole. 
The  great  advantage  of  using  this  screw  will  be  readily  seen.  It 
always  fitted  the  wood  snugly,  and  held  the  pieces  secured  by  it 
firmly  together,  while  it  could  be  put  in  more  quickly  than  the 
old-fashioned  screw.  Thus  it  had  a  greater  utility,  and  likewise  a 
greater  exchangeability,  than  the  other.  Being  a  new  and  useful 
invention,  the  patentee  had  the  exclusive  right  of  making  it  for  the 
succeeding  eighteen  years.  By  agreement  with  the  patentee,  a 
company  was  organized  that  began  the  manufacture  and  sale  of 
these  screws.  The  company  fixed  a  price  at  which  they  were 
sold,  which  was  not  altered  very  much  during  the  whole  time  the 
company  had  the  exclusive  right  of  making  them.  This  company 
alone  could  make  them,  and  they  were  not  obliged  to  manufacture 
any  at  all ;  or,  if  they  were,  they  could  dictate  the  purchase  price. 
Hence,  it  was  in  their  power  to  sell  at  the  very  highest  price 
people  would  pay  rather  than  go  without.  They  could  fix  a  price 
so  high  that  no  one  would  buy  them ;  they  could  lower  it  so 
that    only  a    few  would    buy,  or    they    could    diminish    it    so    low 


ON  THE  MEANING  AND  CAUSES  OF  VALUE.  6^ 

that  many  would  purchase.  The  price,  however,  the  co-npany 
sought  to  fix  was  the  highest  price  at  which  the  screw  would  be 
generally  sold  in  the  place  of  the  old-fashioned  one.  It  was  a  com- 
paratively easy  matter  to  determine  this,  for  they  could  tell  by 
observation  and  inquiry  whether  these  screws  were  used  m  the 
place  of  the  old  ones,  and  whether  they  were  used  where  they 
should  be,  instead  of  something  else  in  their  place.  And  as  the 
screws  came  into  general  use  soon  after  their  manufacture  began, 
it  was  evident  that  the  company  had  set  as  low  a  price  as  was 
necessary,  in    order  to  make  extensive  sales. 

It  is  not  always  easy  for  the  monopolist,  in  the  beginning,  to 
ascertain  what  is  the  highest  price  he  can  set  upon  his  monopoly 
in  order  to  reap  the  largest  profit  therefrom.  For,  be  it  remem- 
bered, the  monopolist  does  not  always  seek  to  set  a  price  at 
which  the  largest  quantity  can  be  sold,  even  though  he  should 
get  a  reasonable  or  great  profit  from  his  sales:  but  rather  the 
highest  price  at  which  the  largest  ijuantity  will  be  sold,  and  the 
greatest  aggregate  profits  realized  during  the  time  he  has  the  exclu 
sive  right  of  controlling  his  monopoly.  Thus  suppose  the  monopoly 
consists  of  the  right  to  make  and  sell  rubber  goods.  At  first  rubber 
boots  are  sold  at  eight  dollars  a  pair.  We  will  suppose  that  half  of 
this  sum  is  profit.  Thinking  that  the  sales  will  be  largely  increased 
by  a  reduction  of  price,  the  boots  are  afterwards  sold  for  six  dol- 
lars a  pair.  More  purchasers  are  found  at  the  latter  price  than  at 
the  former,  but  as  the  profits  have  been  reduced  one-half  it  is  now 
necessary  to  sell  twice  as  many  goods  as  before,  else  the  aggregate 
profits  arc  diminished  by  the  reduction  of  price.  If,  therefore,  it 
is  found  upon  trial  that  a  diminution  of  price  does  not  bring  as 
large  aggregate  profits  as  the  former  |)ri(c,  then  a  higher  price  is 
set   upon   the  goods.      And  as   the    monopolist  c:an  control   the  jirice 


64  ON    THE     MEANING    AND     CAUSES     OF     VALUE. 

of  his  monopoly,  whatever  it  may  consist  of,  so  can  he  coldly 
squeeze  out  of  men  by  trial  the  highest  price  they  will  pay  for 
his  things  rather  that  not  have  them,  without  fear  of  losing  his 
trade,  or  of  being  undersold,  for  there  is  no  one  to  compete  with 
him.  This  trial  of  the  market  in  order  to  ascertain  the  best  price 
at  which  goods  can  be  sold,  has  been  aptly  termed  by  Adam 
Smith    "  the  higghng  and  bargaining  of  the  market." 

We  might  have  given  a  simpler  illustration,  showing  how  the 
monopolist  can  control  the  highest  price  of  his  monopoly.  We 
will  suppose  him  to  be  the  owner  of  a  fine  picture  by  a  cele- 
brated master.  It  is  the  only  one  of  the  kind  the  master  has 
ever  produced.  The  owner  offers  it  for  sale  at  the  highest  price 
which  he  thinks  any  one  is  willing  to  pay.  Suppose  the  price  to 
be  ten  thousand  dollars.  A  dozen  men  offer  five,  three  offer  seven, 
two  offer  eight,  and  one  offers  nine,  thousand  dollars  for  the  pic- 
ture. This  is  the  highest  price  offered,  and  at  which  the  owner 
must  sell,  if  he  sells  at  all.  Having  a  monopoly,  therefore,  he  is  so 
situated  that  he  can  draw  out  the  desires  of  men  without  losing 
his  picture,  and,  consequently,  can  get  the  very  highest  price  any 
one  is  willing  to  give. 

Another  form  of  monopoly  may  be  mentioned,  namely,  distance 
from  another  market.  Let  us  illustrate  the  character  of  this 
monopoly.  On  the  line  of  the  Chicago  and  St.  Louis  railroad 
lives  a  miller,  who,  at  one  time,  sold  a  portion  of  his  flour  to 
his  neighbors  for  eight  dollars  a  barrel,  and  sent  the  rest  to  St. 
Louis,  which,  after  payment  of  ten  cents  per  barrel  for  freight,  he 
sold  for  seven  dollars.  Hence,  he  received  one  dollar  and  ten 
cents  more  upon  every  barrel  sold  at  home  than  upon  each  one 
sent  to  St.  Louis.  Yet  it  was  cheaper  for  his  neighbors  to  pay  " 
him  eight  dollars  than  go  to  St.  Louis  and  buy  the  flour  for  six 
dollars  and  ninety  cents  a  barrel. 


ON  THE  MEANING  AND  CAUSES  OF  VALUE.  65 

The  extent  of  this  monopoly  may  be  easily  enough  ascertained. 
It  is  the  difference  between  the  merchant's  time  and  expense  of 
traveling  to  the  market  where  the  things  are  bought,  and  the  time 
and  expense  of  his  customer.  Thus,  suppose  that  the  expense  of 
doing  a  retail  business  in  New  York  and  Chicago  is  the  same, 
and  that  the  merchants  at  both  places  intend  to  sell  so  as  to 
clear  the  same  net  profits.  The  New  York  merchant  buys  a 
certain  kind  of  silk  of  an  importer  and  sells  the  same  for  three 
dollars  a  yard.  Now,  supposing  that  the  Chicago  merchant  was 
amply  repaid  for  the  cost  of  transportation,  traveling,  etc.,  if  he 
sold  the  same  silk  at  three  dollars  and  twenty-five  cents  per 
yard,  yet  if  he  actually  sells  it  for  three  dollars  and  fifty  cents  a 
yard,  the  additional  twenty -five  cents  in  price  is  a  monopoly 
which  he  enjoys  in  consequence  of  being  so  far  away  from  the 
New  York  market. 

The  same  principle  may  also  be  illustrated  in  the  case  of  sev- 
eral kinds  of  labor.  A  noted  artist  is  a  monopolist.  He  may 
charge  the  highest  price,  and  people  will  readily  pay.  So  with  a 
distinguished  lawyer  and  physician.  A  Webster  or  Mott  has  the 
field  to  himself;  he  can  make  his  own  prices.  So  with  some 
other  men.  But  in  proportion  to  the  number  of  men  exercising 
the  same  calling,  and  having  the  same  skill,  does  the  mono])oly 
decline.  Whenever  labor  constitutes  a  monopoly,  its  price  is  con- 
trolled  by  the  laborer. 

From  what  we  have  said,  we  think  the  reason  clearly  appears 
why  every  dealer  seeks,  so  far  as  he  can,  to  make  the  thing  he 
sells  a  monopoly.  For  if  he  succeeds,  he  can  get  the  highest 
price  for  it;  while  if  he  does  not  succeed,  he  can  get  only  the 
lowest  price,  that  is,  a  price  which,  if  raised  at  all,  the  purchaser 
will  not  pay;  for  either  he  will  acquire  the  thing  by  personal 
6 


66         ON  THE  MEANING  AND  CAUSES  OF  VALUE. 

effort  or  obtain  it  from  some  other  dealer.  Let  us  restate  this 
idea  in  other  language.  The  dealer,  if  he  be  a  monopolist,  can 
get  the  difference  between  the  lowest  and  highest  price  which  a 
purchaser  will  pay  for  a  thing ;  if  he  be  not  a  monopolist,  the 
purchaser  saves  the  difference  for  himself  Is  it  strange,  therefore, 
that  every  dealer  should  try  to  become  a  monopolist,  seeing  that 
he  has  this  advantage,  that  he  can  get  the  highest  price  which 
the  purchaser  will  pay  for  his  monopoly  ?  So  we  find  all  sorts  of 
combinations  among  men  in  order  to  make  monopolies  out  of 
their  trades,  products,  and  professions.  This  is  especially  notice- 
able of  late  among  railways.  They  combine  for  various  reasons ;  a 
prominent  one  being  to  control  the  price  for  carrying  freight  and 
passengers.  And  just  here,  in  illustration  of  what  we  are  saying, 
may  be  mentioned  a  monopoly  enjoyed  by  Commodore  Vander- 
BiLT  and  his  friends  when  the  Erie  Canal  is  closed.  This  is  the 
only  avenue  for  transportation  between  various  places,  except  the 
New  York  Central  Railroad.  When,  therefore,  communication 
by  way  of  the  canal  is  stopped  on  account  of  ice,  the  own- 
ers of  the  railway  have  a  monopoly,  which  they  enjoy  to  the 
fullest  extent.  Mr.  Mill  gives  a  very  interesting  illustration  of 
the  way  in  which  a  monopoly  was  created.  The  Dutch  East 
India  Company  at  one  time  owned  the  Spice  Islands,  and  could 
control  the  quantity  of  produce  raised.  In  consequence  of  being 
able  to  limit  the  quantity,  they  "  obtained  a  monopoly  price  for 
the  produce  "  sold.  "  But  to  do  so  they  were  obliged,  in  good 
seasons,  to  destroy  a  portion  of  the  crops.  Had  they  persisted  in 
selling  all  that  they  produced,  they  must  have  forced  a  market  by 
reducing  the  price,  so  low,  perhaps,  that  they  would  have  re- 
ceived   for    the    larger    quantity    a  less    total    return  than    for    the 


ON    THE     MEANING     AND     CAUSES     OF    VALUE.  67 

smaller;  at  least  they  showed  that  such  was  their  opinion  by  de- 
stroying their  surplus."* 

We  cannot  stop  longer  to  point  out  other  forms  of  monopoly ; 
some  of  them  will  come  to  light  in  connection  with  other  parts 
of  our  subject.  Besides,  whether  an  article  constitutes  a  monopoly 
or  not,  or  whether  men  are  seeking  to  make  a  monopoly  of  a 
particular  thing  or  not,  can  generally  be  determined  by  slight  ob- 
servation. But  this  is  true,  that  whenever  a  monopoly  exists, 
whatever  it  may  consist  of,  the  monopolist,  to  the  extent  of  his 
monopoly,  can  get  the  highest  price  for  his  commodities. 

Let  us  take  up  the  second  principle,  and  test  its  correctness  by 
applying  it  to  other  exchanges.  Take  the  case  of  common  cotton 
goods.  They  can  be  manufactured  to  an  almost  indefinite  amount 
without  increase  of  cost.  But  there  is  no  monopolist  to  squeeze 
out  the  highest  price  which  the  purchaser  will  pay  rather  than  go 
without  them.  In  the  case  of  the  screws,  the  monopolist  could  get 
the  highest  price  for  them  because  he  could  control  the  quantity. 
He  had  one  end  of  the  string,  and  that  the  most  important  one, 
which  no  man  could  take  away.  Now,  the  situation  is  reversed. 
The  purchaser  can  buy  at  the  lowest  price.  If  the  dealer  charged 
any  more,  the  purchaser  would  go  away  with  the  expectation  of 
purchasing  of   some  one  else. 

And  now  the  light  breaks  forth  to  clear  up  the  darkness  cre- 
ated by  the  monopolist.  As  his  selfishness  leads  him  to  accumu- 
late the  largest  aggregate  profits  from  his  monopoly,  so  do  these 
high  profits,  by  exciting  the  selfishness  of  other  men,  draw  them 
into  the  production  of  the  same  things  whenever  it  is  po.ssible. 
Thus,  it  often  happens  that  if  a  business  is  exceedingly  profitable, 
others  will  press  into  it  until  production  becomes  so  great  that  the 

*  Princ.   of  Polit.  Econ.,  vol.   i,  p.  552. 


68  ON  THE  MEANING  AND  CAUSES  OF  VALUE. 

cost  of  producing  will  not  be  realized.     One  illustration  will  suffice. 
So  long  as   the  patent  for  making  vulcanized  rubber  goods  was  in 
force,  the  owners  of  it  realized  great  profits  therefrom.     Upon  the 
death  of   the  patent,  so  many  rushed  into    the  same  business   that 
the  succeeding  gains  of  the  monopolist  melted  quickly    away.     So 
is  it   ever  with  monopolies.     The  selfishness  of  men  which  inspires 
them  to    create  monopolies    is  counteracted    by  the    selfishness    of 
others,  bringing  about,  sooner  or  later,    their  destruction.      Hence, 
while    one    party    in    the   industrial   world    is   trying    to    build    up 
monopohes,  another  party  is  equally  zealous  in  tearing  them  down. 
Having  shown  when    the  highest  and   the  lowest  price  are  paid 
for  commodities,  we  shall  take  note  of  the  reasonable  price  towards 
which  all   commodities  are    tending.     This    is    the    ultimate    price 
which  will  be  paid   for  all   things.     For  no    man  will    continue  to 
produce  permanently  at  a  loss;    indeed,   he  could  not  do  so  if  he 
wished;  as  he  would  inevitably  become  a  bankrupt.    So  Mr.  MiLt 
says :  "  Capitalists  will  not  go  on  permanendy  producing  at  a  loss. 
They  not    even    go    on    producing  at    a  profit  less  than   they    can 
live    upon.       Persons     whose    capital    is    already    embarked,     and 
cannot  be  easily  extricated,  will  persevere  for  a    considerable   time 
without  profit,  and  have  been  known    to  persevere  even  at  a   loss, 
in    hopes   of  better    times.     But    they  will  not    do  so    indefinitely, 
or  when  there  is    nothing  to    indicate  that   times  are  likely  to    im- 
prove.     No    new  capital    will  be  invested  in    an  employment,  un- 
less there  be    an  expectation    not    only    of   some   profit,    but  of  a 
profit  as  great  (regard  being  had  to  the  degree  of  eligibility  of  the 
employment  in  other  respects)  as  can  be  hoped  for  in  any  other  oc- 
cupation at  that  time  and  place.  When  such  profit  is  evidently  not 
to  be  had,  if   people  do  not  actually  withdraw  their    capital,  they 
zt   least  abstain    from    replacing  it  when  consumed.      The   cost   of 


ON     THE     MEANING     AND     CAUSES     OF     VALUE.  69 

production,  together  with  the  ordinary  profit,  may  therefore  be 
called  the  necessary  price,  or  value,  of  all  things  made  by  labor 
and  capital.  Nobody  willingly  produces  in  the  prospect  of  loss. 
Whoever  does  so,  does  it  under  a  miscalculation,  which  he  cor- 
rects as  fast  as  he  is  able."* 

Let  us  give  one  other  illustration  for  the  purpose  of  bringing 
into  a  single  view  the  existence  and  operation  of  the  foregoing 
principles.  Several  years  ago  checked  woolen  clothing  was  exten- 
sively worn,  it  then  being  fashionable.  In  the  beginning,  the 
quantity  that  could  be  obtained  was  quite  limited,  and  as  its 
exchangeability  suddenly  increased,  it  constituted  a  monopoly  to  a 
limited  extent.  The  profit  to  the  manufacturer  being  large,  others 
began  to  make  the  same  goods  as  soon  as  they  could,  so  that  the 
profits  on  them  rapidly  fell  away  to  the  cost  of  production.  After 
a  time  fashion  made  a  new  decree  that  checks  should  no  longer 
be  worn.  Immediately  the  exchangeability  of  the  goods  declined. 
Those  who  followed  the  decrees  of  fashion,  if  daring  to  trample  so 
far  upon  her  laws  as  to  wear  out  what  checked  clothing  they  had, 
bought  no  more.  True,  some  were  unmindful  of  her  dictates 
and  were  willing  to  wear  checks  still;  to  others  these  goods  had 
always  had  a  certain  degree  of  exchangeability,  and  when  the 
merchant  was  willing  to  sell  at  a  price  corresponding  with  their 
exchangeability  to  these  purchasers,  they  were  ready  to  buy.  In 
the  beginning,  the  manufacturer  was  a  qualified  monopolist,  that 
is,  he  controlled  the  supply  for  a  time,  and  so  fixed  the  price; 
afterwards  the  exchangeability  of  the  goods  rapidly  declined,  so 
that  the  purchaser  fixed  the  price;  in  the  end,  the  quantity  on 
hand  having  diminished,  the  final  price  was  determined  by  the  cost 
of  production, 

*  Princ.  0/  Polit,  Econ.,   vol.   i,  p.  555. 


70  ON  THE  MEANING  AND  CAUSES  OF  VALUE. 

It  is.  evident,  therefore,  that  a  reasonable  price,  which  is  the  cost 
of  production,  will  be  the  ultimate  price  of  all  things.  This  price 
will  also  equalize  the  division  of  gains  so  that  no  one  will  get  more 
or  less  than  he  ought  to  have.  It  is  beyond  our  space  to  show 
that  the  number  of  commodities  bought  and  sold  at  a  reasonable 
price  are  constantly  increasing,  yet  the  evidence  of  this  fact  is 
conclusive. 

The  difference  between  the  highest  and  the  lowest  price  of  a 
commodity  is  often  modified  by  various  causes  that  we  may  call 
extrinsic.  Thus  a  man  may  pay  more  for  a  thing,  because  of  his 
friendship  to  the  seller,  or  sympathy  for  his  condition.  People 
will  pay  more  for  things  at  fairs  and  festivals  in  order  to  aid  the 
objects  which  such  associations  represent.  So  the  members  of  a 
community  may  trade  at  a  particular  place,  even  though  they  pay 
a  somewhat  higher  price  for  their  goods,  on  account  of  the  known 
character  of  the  dealer  for  honesty,  politeness,  etc.  Again,  the  de- 
sires of  a  purchaser  may  often  be  veiled,  so  that  he  does  not 
actually  pay  as  high  a  price  as  he  would,  if,  his  mind  being 
like  a  piece  of  glass,  the  dealer  could  see  what  his  real  desires  were. 
The  same  is  also  true  of  the  dealer.  These  are  seeming,  not  real 
exceptions  to   the  principles  set  forth. 

Having  stated  when  the  highest  and  the  lowest  price  are  paid,  and 
also  what  will  be  the  ultimate  price  of  things,  it  may  be  neces- 
sary to  say  something  further  concerning  the  fluctuations  of  price. 
If,  for  instance,  the  price  of  wheat  is  one  dollar  per  bushel  to- 
day, and  one  dollar  and  a  quarter  to  morrow,  what  has  produced 
the  change  ?  Many  would  say  it  has  been  produced  either  be- 
cause the  quantity  to  be  had  has  diminished  or  the  quantity  de- 
sired has  increased.  This  is  not  always  true.  Suppose  that  three 
men  are  each  desirous  of  purchasing   a   particular   horse,  and  that 


ON  THE  MEANING  AND  CAUSES  OF  VALUE.  71 

each  one  is  willing  to  give  one  hundred  dollars  for  it,  and  no 
more.  No  greater  price  can  be  obtained  for  the  horse  because 
there  are  three  customers  than  if  there  were  only  one.*  The  same 
is  true  in  respect  to  many  of  the  transactions  of  life.  People  will 
give  a  certain  sum  for  a  particular  thing,  and  no  more ;  no  matter 
whether  the  quantity  be  more  or  less.  The  reason  of  this  in  many 
cases  is,  that  if  things  cannot  be  purchased  at  a  given  price, 
others  are  purchased  as  substitutes  therefor.  Consequently,  if 
the  quantity  of  a  commodity  becomes  much  reduced,  the  dealer 
may  be  obliged  to  sell  at  the  old  price,  or  no  one  will  buy. 
Remembering  that  personal  effort  and  willingness  of  deprivation 
always  fix  the  extremes  of  price,  fluctuations  in  price  are  the 
consequences  of  a  change  in  the  exchangeability  of  things.  So 
long  as  this  is  unchanged,  whether  the  article  itself  becomes  plen- 
tiful or  scarce,  its  price  remains  the  same.  It  is  true  when  the 
quantity  of  a  commodity  diminishes,  its  exchangeability  often  in- 
creases, and  vice  versa.  Suppose,  for  illustration,  that  the  wheat 
crop  is  only  half  as  great  this  year  as  last,  so  that  all  cannot 
have  their  wants  supplied  if  they  remain  the  same  as  before.'  I 
say  to  myself:  "  The  wheat  crop  is  short  this  year,  but  I  mean  to 
have  all  that  I  want,  whether  others  get  all  they  want  or  not." 
Others  say  the  same  thing.  In  such  a  case  it  becomes  more  ex- 
changeable, so  that  all  are  willing  to  pay  a  higher  price.  Take 
another  example.  Not  long  since  the  price  of  laths  in  the  New 
York  market  had  advanced  a  little.  •  What  was  the  reason  of  this 
advance?  It  was  suddenly  found  that  the  (juantity  on  hand  was 
quite   limited,  and    the    dealers    believed    that  all    the    laths    in  the 

*  Mr.  Thornton  has  succeeded  in  showing  that  the  law  of  supply  and  demand,  at  least  as 
generally  stated,  is  very  defective ;  that  if  it  were  true,  prices  should  often  rise  when  they  do 
not,  and  vice  versa.  (Thornton  on  Labor,  chap.  1).  Though  succeeding  in  this,  his  attempts 
to  replace  it  by  the  law  of  competition,  we  think  Mr.  Mill  has  shown  to  be  a  failure.  See  re- 
view of  Thornton's  book  by  J.  S.  Mill,  Fort.  Rev.,  vol.  xi,  pp.  50S-S18. 


72  ON  THE  MEANING  AND  CAUSES  OF  VALUE. 

market,  and  more,  would  be  needed  at  once  to  finish  the  build- 
ings in  process  of  construction.  The  dealers  took  advantage  of 
this  state  of  things  to  increase  the  price.  They  became  in  fact 
qualified  monopolists,  that  is,  they  sought  to  control  the  price  to 
a  certain  extent.  When  the  condition  of  the  market  was  found 
out  by  the  builders,  they  rushed  to  the  dealers  to  get  their  wants 
supplied  in  order  to  complete  their  work.  The  exchangeability  of 
the  laths  suddenly  increased, — the  builders  were  willing  to  pay 
more  for  them, — and  so  the  dealers  could  get  the  additional  price 
they  had  fixed.  Suppose  the  builders  had  met  together  and 
agreed  not  to  pay  the  advance,  but  to  send  elsewhere  for  their 
supplies,  would  the  advance  have  continued?  Certainly  not;  it 
would  have  sunk  down  till  the  purchases  were  sufficient  in  num- 
ber and  quantity  to  satisfy  the  dealers.  So  it  will  be  found  in 
every  case.  Personal  effort  and  willingness  of  deprivation  fix  the 
extremes  of  price,  while  the  variations  between  them  are  depend- 
ent upon  exchangeability,  which  in  turn  is  affected  by  many  causes, 
the  chief  of  which  is  difficulty  of  attainment. 


yi. 


A     MEASURE     OF     VALUE, 


It  is  impossible,  as  we  have  seen,  to  find  an  invariable  measure 
of  value. 

But  a  comparison  of  values  may  be  made,  showing  what  ought 
to  be  regarded  as  a  real  advance  or  decline  in  the  value  of  a 
commodity.  Suppose  that  the  value  of  ten  commodities  have  re- 
mained unchanged  for  twenty  years,  and  after  that  time,  one  of 
them,  wheat  for  example,  cannot  be  exchanged  for  more  than  half 
the  quantity  of  the  other  things  as  before.  The  value  of  wheat  as 
measured  by  them,  has  declined  in  value,  which  decline  may  be 
regarded  as  a  real  diminution. 

Although  an  invariable  standard  of  value  is  impossible,  neither 
is  it  needed  for  so  many  purposes  as  is  generally  supposed.  A 
measure  of  value  is  not  required  to  inventory  one's  possessions. 
Prof.  Fawcet  is  wrong  in  saying  that  "  without  some  such  meas- 
ure the  amount  either  of  a  nation's  or  an  individual's  wealth  could 
only  be  stated  by  enumerating  a  long  catalogue  of  commodities. 
Instead  of  saying  that  a  farmer  is  worth  jQ  9,000  we  should  be 
able  to  form  no  other  estimate  of  his  wealth,  except  by  making  an 
inventory  of  his  possessions.      The   number    of   cows,  horses,   pigs, 


74  A     MEASURE     OF     VALUE. 

sheep,  the  quantity  of  corn,  etc.,  he  possessed,  would  all  have  to 
be  separately  enumerated."  *  Not  so,  for  if  there  were  no  recog- 
nized standard  of  value,  he  could  estimate  the  number  of  bushels 
of  wheat  or  pounds  of  iron,  to  which  all  his  property  is  equivalent. 
Instead  of  affirming  that  his  property  was  worth  ^g,ooo,  he  might 
say  it  was  worth  100,000  bushels  of  wheat  or  ten  thousand  tons 
of  iron,  or  something  else. 

A  measure  of  value  is  not  required  in  making  specific  ex- 
changes. For  example,  two  horse-jockeys  meet  who  wish  to  trade 
horses.  Do  they  need  any  measure  of  value  in  order  to  swap  ani- 
mals? Listen  to  their  conversation.  A  is  willing  to  exchange 
equally,  but  B  says  no ;  he  wants  something  more  besides  A's 
horse.  "If,"  says  the  latter,  "your  horse  is  worth  $100,  mine  is 
worth  $  200."  In  other  words,  B  regards  his  horse  as  worth 
twice  as  much  as  A's.  It  is  of  no  consequence  how  much  A 
values  his  horse,  or  by  what  standard  he  values  him,  B  regards  his 
horse  as  worth  twice  as  much.  It  will  be  readily  seen  that  if 
gold  or  any  other  measure  of  value  had  never  been  thought  of,  the 
valuation  of  the   respective  horses  could  be  as  easily  ascertained. 

A  measure  of  value  is  needed  to  compare  or  register  the  values 
of  all  articles  of  merchandise  for  purposes  of  general  exchange. 
For,  if  one  person  was  comparing  the  value  of  all  things  by  wheat, 
and  another  by  gold,  and  another  by  silver,  and  a  fourth  by  cop- 
per, and  so  on,  it  would  be  quite  impossible  to  have  any  general 
quotation  of  prices.  As  these  are  necessary  for  the  transaction  of 
business,  as  well  as  for  estimating  the  cost  of  living,  a  standard  of 
value  is  necessary. 

Another  need  of  a  measure  of  value  is  to  prevent  undue  gain 
or  loss  by  persons  in  making  contracts.     For,  if  the  measure  be  a 

*  Man.  of  Polit.  Econ.,  p.  301,  3d  ed. 


A     MEASURE     OK     VALUE.  75 

varying    one    and    increases    in    value,    the    creditor    will    get    too 
much;   if  the    measure    decreases    in  value,  he    will  get    too    little. 

In  our  country  the  unit  of  measure  for  expressing  value  is  the 
dollar,  which  measure  was  established  by  act  of  Congress,  April 
2,  1792.  This  measure'  of  value,  which  is  a  decimal  one — con- 
sisting of  a  dollar  and  its  fractional  parts — so  superior  in  con- 
venience to  every  other  measure  in  use,  was  the  invention  of 
Jefferson. 

Although  the  unit  of  value-measure  is  the  dollar,  yet  there  are 
four  different  instruments  expressing  that  unit. 

The  act  of  1792  provided  for  the  coinage  of  a  silver  dollar, 
of  the  value  of  a  Spanish  milled  or  pillar  dollar,  then  current. 
The  silver  dollar  was  first  coined  in  1794,  weighing  416  grains,  of 
which  371^  grains  were  pure  silver,  the  fineness  being  892.4 
thousandths.  The  act  of  January  18,  1837,  reduced  the  standard 
weight  to  4121^  grains,  but  increased  the  fineness  to  900  thous- 
andths, the  quantity  of  pure  silver  remaining  371^  grains  as  be- 
fore. The  coinage  of  the  silver  dollar  has  been  discontinued, 
except  as  a  "trade  dollar"  for  circulation  in  China,  Japan,  and 
other  oriental  countries.* 

The  act  of  March  3,  1849,  authorized  the  first  coinage  of  gold 
dollars.  They  were  issued  the  same  year.  They  weigh  twenty- 
five  and  eight-tenths  grains,  are  nine-tenths  fine,  and  contain 
23,22  grains  of  pure  gold.  Under  this  act  they  have  been  coined 
ever  since. 

In  1862,  Congress  authorized  the  issue  of  a  paper  dollar,  com- 
monly known  as  the  greenback.  This  has  become  the  universal 
measure  of  value  in  this  country.  As  this  paper  dollar  is  worth 
less    than    a    gold    one,   peo])le    will    buy    and  sell    by  the    inferior 

*  Act  of  Congress,  1873. 


76  A     MEASURE     OF     VALUE. 

measure.  This  is  always  the  case.  In  proof  of  the  fact  it  is  only 
necessary  to  state  that  the  prices  of  most  commodities  are  largely 
increased  because  of  the  adoption  of  this  paper  measure.  When 
gold  or  its  equivalent  was  the  only  measure  of  value,  in  1859, 
a  barrel  of  flour  was  sold  for  five  dollars. "  When  greenbacks  were 
invented,  in  1862,  the  same  quality  of  flour  sold  in  1864  for  ten 
dollars  a  barrel.  Why  this  difference  of  price?  Because  in  the 
latter  case  the  flour  is  measured  by  greenbacks;  in  the  former  by 
gold.  Some  things  are  measured  by  the  gold  dollar  now,  the 
same  as  before  the  creation  of  legal-tender  notes,  especially  impor- 
tations, which  are  paid  for  in  gold;  the  prices  of  almost  every- 
thing else,  however,  are  measured  solely  by  paper  dollars,  because 
sellers  expect   to  receive   them   in  exchange  for  their  commodities. 

The  last  form  of  dollar  is  the  bank  note,  which  has  the  same 
value  and  characteristics  as  the  legal-tender  note,  and  the  two  are 
employed  indifferently  as  a  unit  of  measure. 

Thus,  the  dollar — the  unit  of  measure — embraces  gold,  silver, 
legal-tender-  and  bank-notes.  If  we  inquire  the  price  of  anything, 
the  answer  usually  is,  so  many  dollars;  or,  if  less  than  a  dollar, 
the  fractional  part  thereof  In  store  and  shop,  in  railway  car  and 
manufactory,  the  price  of  everything  is  measured  by  dollars. 

When  a  commodity  is  exchanged  for  a  dollar,  whatever  may  be 
the  instrument  expected  in  exchange,  we  do  not  have  in  view  the 
receiving  merely  of  some  ideal  thing,  but  rather  of  so  much  gold, 
or  silver,  or  its  equivalent  Some  deny  this.  Says  Mr.  Col- 
well:*  "When  a  barrel  of  flour  is  said  to  be  worth  five  dollars, 
the  party  fixing  that  price  does  not  mean  the  quantity  of  gold  in 
a  half-eagle,  or  of  silver  in  five  dollars.  .  .  So,  if  in  England 
an    article    is    said    to    be    worth    fifty-five    shillings,    neither    party 

*  IVays  and  Means  of  Payment,  p.  79. 


A     MEASURE     OF     VALUE.  77 

forms  any  idea  of  the  quantity  of  gold  equivalent  to  that  amount, 
although  payment  cannot  be  made  in  silver  beyond  forty  shilhngs. 
So,  during  the  Revolutionary  war,  when  for  many  years  there  was 
only  a  paper  circulation,  prices  were  expressed  in  the  various  cur- 
rencies of  the  different  colonies,  and  very  few  indeed  could  have 
been  guided  by  the  quantity  of  gold  or  silver  equivalent  to  any 
price  expressed  in  their  pounds,  shillings,  and   pence. 

"  It  is  evident,  therefore,  that  money  of  account  is  the  medium  in 
which  prices  are  quoted  and  expressed  in  all  countries.  It  is  ca- 
pable of  measuring,  comparing,  and  stating  values  to  the  utmost 
extent  of  the  requirements  of  trade." 

It  is  true  when  dollars  are  received  and  paid,  we  are  not  always 
thinking  of  the  quantity  of  gold  or  silver  they  contain,  but  rather, 
what  may  be  had  for  them.  This  is  why  it  has  been  said  that  a 
counterfeit  or  base  dollar  performs  equally  well  the  offices  of  a 
good  one,  so  long  as  no  one  knows  that  it  is  bad.  Still,  in  re- 
ceiving metallic  dollars,  we  do  not  forget  about  their  weight  and 
purity.  The  reason  why  we  do  not  always  weigh  them  is  that, 
from  long  experience,  we  find  they  are  generally  as  heavy  and  as 
pure  as  the  law  requires.  Let  their  debasement  begin,  either  by 
the  admixture  of  foreign  metal,  or  by  diminution  in  their  legal 
quantity  of  gold  or  silver,  and  not  a  metallic  dollar  would  be  re- 
ceived without  first  being  weighed.  'I'he  same  is  true  of  paper 
dollars.  As  long  as  their  future  redemption  is  certain,  they  are 
readily  received  without  thinking  about  the  quantity  of  gold  and 
silver  that  may  be  had  for  them ;  let  their  redemption  become 
uncertain,  and  people  will  be  disinclined  to  receive  them,  either  in 
exchange  for  commodities,  or  in  payment  of  debts.  Their  value 
diminishes,  ])erhaps  ceases. 

It  is  true  that  an    ideal  money  has    been   used    by  some   people. 


78  A     MEASURE     OF     VALUE. 

The  famous  illustration  of  Montesquieu  is  always  brought  to  the 
front  by  those  maintaining  the  theory  of  an  actual  or  possible 
ideal  measure  of  value.  The  author  of  the  Spirit  of  Laivs  *  ob- 
served that  the  blacks  on  the  coast  of  Africa  have  a  sign  of 
value  without  money,  purely  ideal.  A  certain  article  is  worth 
three  macutes,  another  six,  another  ten  macutes.  This  is  the 
same  as  if  they  said  simply  three,  six,  ten.  Dr.  Lieber  once 
stated  in  an  address  before  the  Historical  Society  of  New  York, 
that  "  in  Hamburg  millions  are  exchanged  in  the  name  of  the  mark 
banco,  but  no  such  coin  exists,  nor  is  there  any  native  coin  of 
that  commercial  city — though,  of  course,  foreign  coins  are  in  use." 
Earth,  t  in  his  Travels  and  Discoveries  in  North  and  Ce)itral  Africa, 
writes  of  a  people  who  have  "  not  at  present  any  standard  of 
money  for  buying  and  selling ;  for  the  ancient  standard  of  the 
country,  namely,  the  pound  of  copper  has  long  since  fallen  into 
disuse,  though  the  name  '  rotl,'  still  remains.  The  '  gabaga,'  or 
cotton  strips  which  then  became  usual,  have  lately  begun  to  be 
supplanted  by  the  'cowries'  or  'kungona'.  .  .  .  Eight  cowries 
or  kungona  are  reckoned  equal  to  one  gabaga,  and  four  gabaga, 
or  two  and  thirty  kungona,  to  one  rotl."  Here  an  ideal  measure 
of  value  has  survived  the  use  of  the  real  measure. 

It  is  not  true,  however,  that  the  dollar — our  money  of  account 
— is  ideal  money,  as  Mr.  Colwell  maintains,  for  we  are  thinking 
of  its  weight  and  purity  whenever  we  receive  it,  or,  if  we  receive 
a  paper  dollar,  of  its  ultimate  redemption  in  the  precious  metals. 
We  admit  that  we  are  slowly  approaching  towards  the  use  of  ideal 
money  in  consequence  of  divorcing  in  thought  the  quantity  of  gold 
contained  in  the  dollar  from  the  dollar  as  a  thing  of  pure  imagin- 

*  Vol.  2,  p.   59,  new  Am.  ed. 
t  Vol.  2,   p.  55. 


A     MEASURE    OF    VALUE.  79 

ation.  It  is  possible  to  have  an  ideal  money.*  The  foregoing 
extract  from  Barth  proves  this.  That  the  time  is  not  yet,  nor 
soon  will  be,  when  our  money  will  become  purely  ideal,  is  not 
worth   time  and  space  to  refute. 

Only  one  measure  of  value  ought  to  exist  in  a  State.  For, 
the  having  of  a  second  one  is  a  source  of  confusion  and  loss.  This 
has  been  clearly  maintained  by  nearly  all  economic  writers.  Said 
Sir  William  Petty,  as  early  as  the  seventeenth  century,  in  allud- 
ing to  the  use  of  gold  and  silver  as  standards :  "  The  relative 
value  of  gold  and  silver  is  modified  according  as  human  industry 
extracts  more  of  one  than  of  the  other  from  the  bowels  of  the 
earth.  Consequently  only  one  at  a  time  should  be  used  as  money." 
And  likewise  I>ocKEt  has  written  that,  "two  metals,  as  gold  and 
silver,  cannot  be  the  measure  of  commerce  both  together  in  any 
country :  because  the  measure  of  commerce  must  be  perpetually 
the  same,  invariable,  and  keeping  the  same  proportion  of  value  in 
all  its  parts.  .  .  One  may  as  well  make  a  measure,  for  example  a 
yard,  whose  parts  lengthen  and  shrink,  as  a  measure  of  trade,  of 
materials  that  have  not  always  a  settled,  invariable,  value  to  one 
another."  Moran  and  Patterson  J  are  the  only  writers  of  late 
holding  opposite  views.  They  contend  that  if  two  or  more  things 
are  used  as  standards  of  value,  it  is  within  the  power  of  the 
government  to  declare  what  each  is  worth,  so  that  no  difficulty 
will  arise  from  their  use.  'I'his  may  be  admitted,  but  the  very  in- 
stances Moran  §    has    given    of  neglect   and    incompetence   on  the 

*  Money  of  account  .  .  might  exist,  althotigh  there  was  no  such  thing  as  any  substance, 
which  could  become  an  adequate  and  proportional  equivalent  for  every  commodity.  Sir 
yames  Stewart's  Polit.  Econ.,  vol  i,  p.   526,'  4th  ed. 

"Civilized  nations  generally  make  use  of  ideal  money  only,  because  tliey  have  converted 
their  real  money  into  ideal." — Montequieu  Spirit  0/  Laws,  vol.   2,  p.  56. 

\  Locke's  Works,  vol.  5,  p.   151,  2d  ed.,   1823.      \Econ.  0/  Capital,  pp.  56-9. 

^  Money,  chap.  IV, 


So  A     MEASURE     OF     VALUE. 

part  of  the  government,  prove  quite  conclusively  that  it  should  not 
be  intrusted  with  such  a  delicate  duty.  So  long  as  one  is  sufficient 
for   our  purposes  there  is  no  necessity  for  having   more. 

The  experience  of  France  has  led  her  to  oppose  a  double 
standard.  The  French  monetary  commission,  of  1869-70,  consist- 
ing of  twenty-three  members,  voted,  by  a  large  majority,  in  favor 
of  a  single  gold  standard,  some  of  the  members  going  still  further, 
and  insisting  that  it  was  desirable  to  ascertain  the  views  of  other 
countries,  as  to  the  measures  required  to  carry  out  such  an  ob- 
ject.* Likewise  the  Belgian  Monetary  Commission,  of  November, 
1873,  reported  in  favor  of  adopting  a  similar  standard,  declaring 
that  the  rise  of  prices  in  their  country  had  been  greatly  aggravated 
in  intensity  by  the  existence  of  a  double  standard.  So  the  world 
is  gravitating  towards  a  single  standard,  and  ultimately  will  have 
but  one. 

'  See   Corresp.  in   Land.  Econ.,  Nov.   15,   1873. 


VII. 


MONEY     AND     ITS     USES. 


Great  Mammon  !   Greatest  god  below  the  sky. — Spenser. 

The  term  money,  taken  in  its  strict  etymological  sense,  means 
something  standing  between  two  extremes  and  relating  them  to 
each  other.  Money  is  exchanged  for  other  things,  but  never  for 
itself  Small  boys,  indeed,  swap  cents,  but  men  use  money  as  a 
medium  to  get  other  things  than  those  parted  with.  Men  have 
the  same  wants  now  as  before  the  invention  of  money — they  want 
bread,  cloth,  furniture,  etc. — and  money  is  used  only  as  an  easier 
means  of  satisfying  these  wants.  If  we  could  imagine  a  state  of 
society  in  which  commodities  were  exchanged  without  the  use  of 
money,  we  should  readily  learn  the  great  advantage  of  having  it. 
In  such  a  state  the  various  products  of  the  earth  were  exchanged 
directly  for  each  other.  This  system  of  exchange  is  called  barter.* 

*  The  following  instance  of  exchange  by  means  of  barter  is  taken  from  a  work  upon  Fiji  and 
the  Fijians  by  Thomas  Williams  and  James  Calvert.  They  exchange  pottery  for  masi,  mats 
and  yams.  On  one  island,  the  men  fish,  and  the  women  make  pots  for  barter  with  people  on 
the  main.  Their  mode  of  exchange  is  very  irregular ;  the  islanders  send  to  inform  those  on  the 
main-land  that  they  will  meet  them,  on  such  a  day,  at  the  trading  place, — a  square  near  the 
coast  paved  for  that  purpose.  The  people  of  the  continent  bring  yams,  tare,  bread,  etc.,  to  ex- 
change for  fish.  .  .  The  island  tribes  of  the  Great  P'iji  take  yagona  to  the  coast,  receiving  in 
exchange  mats,  mace,  and  fine  salt.     P.  72. 


82  MONEY    AND    ITS    USES. 

Of  a  time  when  this  state  of  things  existed  Homer  sings : 

"  From  Lemnos  isle  a  numerous  fleet  had  come 
Freighted  with  wine,  .     .     . 
.     .     .  All  the  other  Greeks 

Hastened  to  purchase,  some  with  brass,  and  some 
With  gleaming  iron ;  some  with  hides. 
Cattle  or  slaves."* 

Money  is  a  measure  of  value  and  a  medium  of  exchange. 
Having  already  shown  for  what  puq^oses  a  measure  of  value  is 
required,  it  now  remains  to  point  out  the  offices  fulfilled  by  money 
as  a  medium  of  exchange. 

First. — It  is  a  labor-saving  instrument.  A,  a  hatter,  desires  a  coat. 
He  goes  to  B,  a  tailor,  and  making  known  his  wants,  offers  to  ex- 
change a  hat  for  the  garment  desired.  But  B  says  he  does  not 
want  a  hat.  So  A  goes  to  some  other  tailor  who  makes  the  same 
reply;  he  remarks,  however,  that  he  does  need  a  pair  of  shoes,  and 
if  A  could  supply  him  he  would  take  them  in  exchange  for  a  coat. 
A  must  now  find  a  shoe-dealer,  who  will  accept  of  a  hat  in  ex- 
change for  a  pair  of  shoes.  After  spending  a  great  deal  of  time, 
A  finally  succeeds  in  exchanging  a  hat  for  a  pair  of  shoes  and  then 
goes  to  the  tailor  and  exchanges  them  for  a  coat.  See  how  much 
labor  might  have  been  saved  in  this  exchange  by  the  use  of 
money.  A,  instead  of  going  to  B,  to  exchange  a  hat  for  a  coat, 
would  have  sold  his  hat  for  money  to  any  one  who  wanted  it, 
and  with  the  money  thus  obtained  he  could  have  procured  a 
coat.  For  A  would  have  been  willing  to  receive  money  in  ex- 
change for  his  merchandise  inasmuch  as  he  could  exchange  this 
for  anything  he  desired.  The  hat  could  purchase  only  one  par- 
ticular thing,  namely,  shoes.  Thus  it  had  only  a  limited  purchas- 
ing power,  while  money  has  a  general  purchasing  power. 

*  Lord  Derby's  trans. 


MONEY   AND    ITS    USES.  83 

Thus  Prof.  Perry*  correctly  says,  in  pointing  out  the  difference 
between  money  and  other  commodities  :  "  They  have  the  power 
of  buying  some  sorts  of  things  from  some  persons,  it  has  the 
power,  derived  from  the  usages  of  society,  to  buy  all  sorts  of 
things  from  all  persons."  Because  money  has  this  general  pur- 
chasing power  it  saves  a  great  deal  of  time  in  making  exchanges. 
"  At  first  view,"  says  Chevalier,!  "  it  might  seem  that  the  use  of 
money  complicated  transactions,  inasmuch  as  it  necessitates  two 
exchanges  where  otherwise  there  would  be  but  one ;  but,  in  truth, 
its  use  is  of  enormous  advantage,  and  we  should  take  an  im- 
mense step  backward  in  civilization,  if  we  were  to  return  to  bar- 
ter. It  has  been  wisely  said  that  there  is  no  machine  which 
economises  labor  like  money,  and  its  adoption  has  been  likened 
to  the   discovery    of  letters." 

The  utility  of  money  as  a  labor-saving  instrument  may  be  strik- 
ingly illustrated  from  the  experience  of  Barth.|  He  tells  us  that 
in  one  of  the  villages  through  which  he  passed,  the  practice  of  the 
farmer  was  to  bring  his  corn  to  the  Monday  market,  but  he  would 
on  no  account  receive  shells  in  payment,  and  would  rarely  accept 
of  a  dollar;  the  person,  therefore,  who  wished  to  buy  com,  if  he 
had  only  dollars,  was  first  obliged  to  exchange  them  for  shells ; 
with  these  he  must  buy  a  "  kulgu,"  or  shirt,  and  with  this  he 
might  succeed,  after  a  good  deal  of  bantering,  in  buying  the 
farmer's  corn.  So  great  was  the  difficulty  of  getting  things,  in 
consequence  of  having  no  general  medium  of  exchange,  that  often 
his  servants  would  return  from  their  purchases  in  a  state  of  the  ut- 
most exhaustion. 

Secondly. — It    prevents   the    deterioration   and  loss  of  commodi- 

*  Elements  of  Polit.  Econ.,  p.  208. 

t  On  the   Probable  Fall  in    tht   Value  0/  Gold,  p.  38. 

{  Travels,  vol.  2,  p.  51. ' 


§4  MONEY    AND    ITS    USES. 

ties.  C  is  a  baker.  He  must  dispose  of  his  bread  quickly 
after  it  is  made  or  it  will  spoil.  He  cannot  find  only  here  and 
there  a  person  who  will  give  him  any  thing  useful  for  it  in  ex- 
change. Thus  exchanges  take  place  slowly  and  with  difficulty, 
and  while  they  are  going  on  the  bread  becomes  old  and  unfit  for 
use.  Long  before  disposing  of  his  entire  stock,  a  portion  of  it  has 
been  injured  or  destroyed.  If  money  were  in  use,  he  could 
readily  sell  his  bread  for  money,  and  with  that  obtain  whatever 
he  desired.  By  transmuting  his  perishable  products  into  money, 
he  may  keep  its  power  of  purchase  locked  up  in  this  form  as  long 
as  he  pleases. 

Thirdly. — Money  reduces  the  cost  of  a  commodity.  In  a  State 
having  no  money  with  which  to  make  exchanges,  more  time  is  ex- 
pended, perhaps,  in  exchanging  things  than  was  spent  in  pro- 
ducing them.  Thus,  the  hatter  previously  mentioned  might  have 
consumed  more  time  in  exchanging  a  hat  for  the  coat  he  wanted 
than  was  employed  in  making  the  hat.  Consequently,  the  hatter 
is  really  deprived  of  the  benefit  of  his  labor,  or  the  value  of  his 
product  must  be  increased. 

Fourthly. — Men  do  not  always  wish  to  exchange  for  equal 
amounts.  A  farmer  who  brings  a  fatted  ox  to  market  finds  per- 
sons enough  wanting  a  few  pounds  of  beef,  but  none  wanting  the 
entire  animal.  He  cannot  divide  the  ox  and  give  a  part  of  it 
for  a  few  pounds  of  coffee  or  tea;  perhaps  he  does  not  want  the 
value  of  one  quarter  of  the  animal  in  groceries  or  other  things. 
By  means  of  money  all  difficulties  can  be  easily  overcome.  The 
farmer  can  first  exchange  the  ox  for  money,  and  with  that  he  can 
get  whatever  he  desires. 

Fifthly. — Money  secures  the  employment  of  labor  by  providing 
for  its  reward.      Without    money  how  could   a  cotton    factory,  for 


MdNEY    AND    ITS    USES.  85 

example,  be  run  with  its  hundreds  of  hands  ?  The  owner  could 
pay  them  only  in  cloth ;  and  what  could  be  done  with  that  ? 
They  certainly  have  not  time  to  go  far  to  exchange  it  for  other 
products,  and  if  they  had,  they  would  be  unable  to  make  the 
desired  exchanges,  for  no  entire  community  requires  more  than  a 
limited  amount  of  cloth.  And  if  the  operatives,  in  despair  of  get- 
ting their  bread,  should  think  of  sending  their  cloth  away,  who 
wants  it  ?  where  shall  it  be  sent  ?  A  man  having  nothing  except 
labor  or  skill  to  offer,  might  be  unable  to  secure  employment  from 
those  who  wanted  him  and  were  willing  to  pay  him  most  liberally, 
because  they  are  not  able  to  give  him  anything  satisfactory  in 
return;  hence,  he  must  labor  for  those  who  are  willing  to  give,  in 
ever  so  small  quantity,  the  articles  needed  for  his  support.  "The 
physician  must  take  his  pay  in  iron,  or  bread,  or  butcher's  meat ; 
and  if  any  of  his  patients  produced  what  he  did  not  want,  he 
must  either  attend  them  gratuitously,  or  they  must  die  without 
assistance.  Besides  this,  there  are  many  products  incapable  of 
division.  If  a  hundred  men  are  engaged  in  building  a  ship  or  a 
house,  how  would  they  take  their  pay  in  kind,  without  taking  the 
ship  to  pieces,  and  thus  rendering  their  work  wholly  useless?"* 
Thus,  without  money  the  division  of  labor  would  hardly  exist. 
Rather  than  lose  the  time  to  make  exchanges  or  run  the  risk  of 
losing  the  results  of  his  labor,  by  injury  or  decay,  or  be  subjected 
to  the  other  difficulties  mentioned,  every  man,  so  far  as  possible, 
would  supply  his  own  needs  by  direct  effort.t 

Besides,    no    man    could    perfect    himself  in    any  one   art,  trade, 
or  profession.      In   the  effort   to  supply  his  wants  by  making  him- 

*  Wavi.anw,  F.l.  0/  Polit.  Econ.,  p.  190.  No  author  has  ilUistrated  the  uses  of  money  more 
clearly  than    President  Wayland. 

t  Barth  says  that  he  was  repeatedly  prevented  from  buying  what  he  absolutely  needed, 
corn,  rice,  etc.,  because  he  did  not  have,  and  could  not  get  what  the  people  wanted  in 
exchange.     Travels,  vol.    i,   p.    568;  vol,  3,  p.  203. 


S6  MONEY    AND    ITS    USES. 

self  whatever  he  desired,  he  could  not  attain  to  that  perfection 
which  is  possible  whenever  man  is  permitted  to  practice  a  single 
art  or  trade,  or  make  a  single  part  of  a  complicated  mechanism. 
Manufacturers  could  not  thrive  at  all  who  sought  to  make  those 
products  requiring  a  minute  subdivision  of  labor.  But  if  the 
laborer  be  paid  in  an  article  that  is  universally  desired,  he  can 
get  whatever  he  likes ;  hence,  it  will  make  no  difference  in  what 
business  he  is  engaged  as  long  as  he  can  have  money  in  exchange 
for  his  labor. 

Such  are  some  of  the  most  obvious  advantages  of  the  use  of 
a  medium  of  exchange.  To  these,  others  might  be  added,  but 
enough  has  been  said  to  make  it  clear  that  money  is  of  the 
greatest  use  as  a  medium  for  exchanging  other  commodities. 

Money,  then,  combines  these  two  qualities — it  is  a  measure  of 
value,  and  a  medium  of  exchange.  This  definition  is  by  no 
means  exact,  for  the  reason,  not  only  that  a  perfect  value-measure 
cannot  be  found,  but  also,  that  everything  is  a  measure  of  value 
and  a  medium  of  exchange  which  is  given  or  received  for  some- 
thing else.  If  jack-knives  are  used  as  a  means  for  getting  other 
things,  they  are  instruments  of  exchange  and  measures  of  value. 
Everything  parted  with  is  a  measure  of  value  for  the  thing  re- 
ceived in  each  particular  transaction.  All  that  can  be  said  of 
money  is,  that  it  is  something  used  in  a  particular  country  or  lo- 
cality more  generally  than  anything  else  for  the  purposes  above 
stated.  The  mistake  of  writers  upon  this  question  is  in  trying  to 
give  a  precise  definition,  which  cannot  be  framed,  unless  it  be  ex- 
ceedingly general.* 

William  Latham  has  declared  that  coins,  all  notes,  whether 
issued  by  the  State  or  by  banks  which  are  endowed  with  the  fac- 

*  See  Banker's  Mag.,  vol.  26,  p.   545;  article,   "What  is  Money?" 


MONEY    AND    ITS    USES.  87 

ulty  of  closing  contracts,  paying  debts  and  acquitting  debtors,  are 
money.*  The  defect  in  this  definition  is  that  not  all  of  these 
instruments  measure  value,  although  all  are  mediums  of  exchange. 
A  definition  in  the  North  British  Review,]  that  money  is  "only 
another  word  for  the  machinery  which  accomplishes  the  exchange 
of  commodities,"  is  defective  for  the  same  reason.  Prof.  Price  | 
has  said  that  "  money  is  not  an  end  but  a  means  .  .  and  thus 
we  arrive  at  last,  at  the  true  view  that  money  is  a  tool  required 
for  certain    specific  purposes." 

Is  it  not  a  litde  singular  that  the  uses  of  money,  which  are 
simply  these  two — a  measure  of  value  and  a  medium  of  exchange 
— should  be  the  subject  of  so  much  confusion?  For  this,  two 
reasons  may  be  given. 

First. — Many  people  believe  that  Government  can  create  value 
and  money.  Government  is  as  powerless  to  create  value  as 
Robinson  Crusoe  was,  when  living  on  his  lone  island  in  the 
Pacific.  Two  persons  are  required  to  create  value  in  every  case. 
What  people  will  take  from  the  Government  in  exchange  for  what 
is  given,  lies  as  much  within  the  power  of  the  people  to  deter- 
mine as  of  the  Government.  It  has  no  more  power  of  ordain- 
ing what  its  members  shall  receive  from  one  another  in  satis- 
faction of  debts  than  the  birds  of  the  air.  Government  may  in- 
deed, call  a  bit  of  gold  "  one  dollar,"  but  it  is  not  the  work  or 
power  of  the  Government  which  gives  value  to  the  gold.  That  is 
the  product  of  labor  which  the  Government  never  performed. 
Melt  the  gold  so  that  every  mark  of  the  Government  superscrip- 
tion is  obliterated,  yet  its  value  is  unchanged.  The  Government, 
by  coining  it,  merely  announces  its  weight   and  fineness. 

Does  the  value  of  a  piece  of  paper  depend  upon  the  inscription 

*  Fort.  Rev.,  vol.  4,  p.  214.        t  Vol.  35,  p.   176.        ;  PrincipUs  of  Currency,  pp.  166,  167. 


OO  MONEY    AND    ITS    USES. 

of  the  Government  thereon  ?  A  greenback  has  value.  Is  it 
valuable  simply  because  the  Government  says  so  ?  Suppose  the 
Government  declared  greenbacks  to  be  valuable,  and  yet  peo- 
ple declined  to  take  them,  would  they  retain  their  value  ?  Of 
course  not.  They  are  valuable  because  the  people  believe  that 
the  Government  will  fulfill  the  promises  of  which  these  are  the 
evidence. 

Secondly. — Money  was  not  designed  to  stimulate,  but  to  facilitate 
exchanges.  It  was  designed  to  save  time  and  labor  in  making  ex- 
changes, but  not  to  add  to  the  number  of  them.  Says  John 
Stuart  Mill:  "It  is  a  machine  for  doing  quickly  and  com- 
modiously  what  would  be  done,  though  less  quickly  and  com- 
modiously,  without  it." 

This  economic  principle  is  very  imperfectly  understood  else  no 
cry  would  be  heard  for  more  paper  money.  The  people,  or  a 
large  portion  of  them,  have  seized  the  idea,  that  somehow  the  ra- 
pidity of  exchanges,  and  the  prosperity  of  business,  depend  upon 
the  quantity  of  money  in  circulation ;  the  greater  the  quantity,  the 
more  prosperous  is  business.  This  is  a  grievous  error  and  arises 
from  a  total  misconception  of  the  uses  of  money.  It  sprang  out 
of  the  fact  that  during  the  war,  when  more  paper  currency  was 
issued,  business  vastly  increased,  and  every  one  rejoiced  over  his 
prosperity.  But  the  prosperity  enjoyed  at  that  time  was  due,  not 
to  an  increase  of  currency,  but  to  a  greater  demand  for  all  sorts 
of  products.  The  Government  became  an  enormous  consumer,  and 
of  course  its  demands  were  great.  It  was  the  National  demand 
superadded  to  that  existing  before,  which  gave  such  an  impetus  to 
business.  The  currency  afloat,  or  more  strictly,  partly  afloat,  did  not 
affect  the  demand.  If  none  had  been  issued  the  demand  would 
have  been  as  great.     A  coincidence  was  mistaken  for  a  cause. 


MONEY    AND    ITS    USES.  89 

This  principle,  that  currency  was  invented  as  a  labor-saving 
instrument,  to  render  exchanges  more  convenient,  ought  to  be 
sounded  in  the  ears  of  all  who  are  seeking  for  an  expansion  of 
the  present  irredeemable  currency.  It  requires  no  argument  to 
prove  that  what  people  are  really  trying  to  get  are  the  things, 
which  minister  to  the  sustenance  and  happiness  of  life  and  body, 
and  that  money  is  merely  a  medium,  a  go-between,  for  getting 
them.  Now,  suppose  there  be  an  increase  of  money,  how  can 
these  things  be  more  easily  acquired  if  their  prices  are  increased  ? 
No  one,  for  a  moment,  will  contend  that  an  increase  of  money 
does  not  tend  to  increase  prices,  and  that  any  more  can  be  pur- 
chased, in  the  aggregate,  with  the  whole  sum,  than  with  the  sum 
existing  before  the  increase  was  added. 

It  is  not  the  proper  function  of  money  to  stimulate  exchanges. 
This  is  a  perversion  of  its  use.  It  was  intended  to  facilitate  them 
and  nothing  more.  Were  this  idea  kept  in  view  we  should  hear 
no  more  about  an  increase  of  the  currency. 

The  Hebrews  used  silver  as  money,  for  it  is  written  tliat 
"Abraham  weighed  to  Ephron,  the  silver  which  he  had  named, 
in  the  audience  of  the  sons  of  Heth,  four  hundred  shekels  of 
silver,  current  money  with  the  merchant."*  Among  pastoral  nations, 
cattle  were  frequently  used,  and  still  are,  by  some  of  the  tribes  of 
Africa.  Homer  tells  us  that  the  armor  of  Diomede  cost  nine 
oxen.  Soon  after  the  period  of  the  Homeric  poems,  copper  skew- 
ers were  used  as  money  throughout  Greece,  which  were  super- 
seded by  the  silver  coinage  of  PHEiDON.t 

*  Gen.,  23:  16. 

i  See  Rawlinson's  Herodotus.  On  the  invention  of  coining  and  the  earliest  specimens  of 
coined  money,  Book  i,  appendix,  note  B.  Also  same  work,  Book  i,  94  and  note  3;  Book  4, 
166,  and  notes;  Book  7,  28  and  29,  and  notes.  The  Lydians.  "so  far  as  we  have  any.  knowl- 
edge, .  .  were  the  first  nation  to  introduce  the  use  of  gold  and  silver  coin."  Id.,  vol.  i, 
p.  180. 


go  MONEY    AND    ITS    USES. 

Once,  the  Anglo-Saxons  regarded  slaves  as  money ;  likewise,  the 
people  of  Newfoundland  codfish  in  the  last  century.  The  Indians 
had  their  wampum ;  Virginia,  at  one  time,  its  tobacco ;  and 
Massachusetts,  wheat.  Adam  Smith  says,  that  in  his  day  a 
village  in  Scotland  used  nails.  Among  the  Carthagenians  an 
unknown  substance  enclosed  in  stamped  leather  was  frequently 
used.*  Likewise,  bark  stamped  with  the  image  of  the  sovereign 
in  China.  Among  the  Spartans,  iron  passed  as  money;  among 
the  Romans  copper,  simple  or  compounded  with  other  metals. 
Throughout  the  islands  of  the  Eastern  Ocean,  and  many  parts  of 
Africa  and  India,  shells  are  still  used.  The  ^Ethiopians  are 
said  to  have  used  carved  pebbles.  In  Thibet,  and  in  some  parts 
of  China,  small  blocks  of  compressed  tea  serve  as  money.  In  some 
of  the  American  colonies  powder  and  shot  were  once  employed; 
likewise,  logwood  in  Campeachy,  sugar  in  the  West  Indies  and 
salt  in  Abyssinia.  In  some  parts  of  Africa  strips  of  cotton 
cloth  are  used.  Barth  speaks  of  the  use  of  the  "  rothl,"  an  ideal 
money  having  no  real  existence,  although  pieces  of  metal  of  that 
name  once  circulated.  He  mentions  the  use  of  beads  as  money  in 
many  places.t  An  ideal  money,  called  macutes,  is  mentioned  by 
Montesquieu,  as  once  in  use  among  some  tribes  in  Northern 
Africa.  Sooner  or  later  gold  and  silver  have  come  to  be  re- 
garded as  money  among  all  nations,  which  have  been  able  to  ob- 
tain them,  either  by  industry,  commerce,    or  conquest.^ 

*  Political  economists  and  others   have  generally   affirmed   that  the  Carthagenians  had  leather 
money,  but  this  is  a   mistake.      See  Heeren's  Historical  Researches.     African  Nations,  p.  68. 

t  For  money  in   use   in   different  parts  of  Africa    see   Earth's    Central  Africa,  vol.    i,  p. 
568;  vol.    2,   pp.   55,  151;  vol.  3,  pp.   190,  230.     Also  Burton's  Lake  Regions,   pp.  233,  271. 

\  MORAN  mentions  many  things  which  have  been  used  as  money,  p.  7;  also  Say,  Polit.  Econ., 
chap.  21,  sees,  i  and  2.  Patterson  has  well  said:  "We  need  not  seek  a  definition  in 
the  intrinsic  qualities  of  the  substances  out  of  which  money  is  made,  for  there  is  not  a  single 
intrinsic  quality  which  is  common  to  them  all.  The  generic  quality  which  constitutes  money 
is  manifestly  something  extrinsic  to  those  substances — some  quality  superimposed  upon,  or 
attributed  to  them,  or  at  least  to  the  shape  which  they  assume  as  currency." — Econ.  o 
Capital,  p.  13. 


MONEY   AND    ITS    USES.  9 1 

The  various  things  used  as  money  differ  greatly  in  value. 
Among  highly  civilized  nations  gold  is  the  most  valuable  instru- 
ment. The  reason  is  it  can  be  exchanged  among  a  greater  num- 
ber of  persons  than  any  other  thing.  It  is  held  in  high  esteem 
by  the  people  of  nearly  half  the  earth.  Yet  gold  is  not  valuable 
everywhere.  "  If  English  merchants  send  out  sovereigns  to  China, 
the  Chinese  will  not  receive  these  coins  as  money — nor  any  other 
kind  of  gold  coins.  Gold  is  not  money  in  the  Celestial  Empire ; 
one-third  of  the  human  race  (nearly  one-half  of  the  civihzed  popu- 
lation of  the  globe)  refuse  to  accept  the  yellow  metal  as  currency. 
Even  in  India,  where  gold  coins  have  been  in  use  from  the  ear- 
liest times,    the  value  of  gold  is  greatly  diminished."* 

Why  have  gold  and  silver  such  a  pre-eminence  over  other 
things  as  money  ?  First,  because  of  their  portability.  "  One  pound 
weight  of  gold  will  ordinarily  command,  in  exchange,  fifteen 
thousand  pounds  of  wheat,  thirty  thousand  pounds  of  Indian  corn, 
five  tons  of  rice,  or  a  ton  and  a-half  of  cotton.f  The  same 
quality  renders  silver  valuable  as  money,  though  less  so,  in  many 
countries,  because  a  larger  quantity  than  gold  has  only  the  same 
value. 

These  metals  are  very  valuable  as  money,  because  they  are  so 
malleable.  They  can  be  wrought  into  any  shape,  will  receive  and 
retain  any  impression,  may  be  divided  into  the  minutest  (juantities 
and  again  united,  with  the  smallest  possible  loss.  Hence,  they  are 
admirably  adapted  for  coinage.  In  consequence  of  the  small  sub- 
divisions into  which  they  may  be  coined,  they  can  be  exchanged 
as  of  equal  value  for  a  great  numl)er  of  products. 

*  Patterson,   id.,  p.  13. 

t  Amasa  Walker,  Science  of  Wealth,  p.  127,  from  which  work  the  reasons  why  gold  and 
silver  are  fitted  to  serve  as  money  are  chiefly  drawn.  See  .ilso  Say's  Polit.  Econ.,  p.  170,  4th 
Am.  ed. 


92  MONEY    AND    ITS    USES. 

They  are  of  uniform  quality.  Found  in  California,  Australia, 
or  Russia,  gold  is  everywhere  the  same.  The  iron  of  different 
countries  varies  greatly.  The  copper  of  Siberia  is  better  than  that 
of  Germany,  while  the  copper  of  Sweden  is  better  than  that  of 
Siberia,  and  the  copper  of  Japan  surpasses  that  of  Sweden.  It 
is  not  so  with  gold  and  silver. 

They  may  be  readily  alloyed  and  refined.  By  alloy  they  are 
made  harder,  and  so  better  adapted  to  use  as  money.  Likewise, 
can  they  be  easily  restored  to  their  original  purity  without  loss. 

They  are  unaffected  by  atmospheric  influences.  They  do  not 
rust  or  decay  like  iron,  so  that  the  gold  and  silver  in  the  age  of 
the  Ptolemies  may  be  in  existence  to-day,  either  as  plate  or 
money. 

They  are  almost  inconsumable  by  use.  Nearly  all  other  com- 
modities are  rapidly  destroyed  by  using  them.  Articles  of  food 
and  clothing,  for  example,  disappear  in  a  comparatively  short 
period.  Even  iron,  in  the  ways  in  which  it  is  generally  used — 
railroads,  agriculture,  the  mechanic  arts,  etc. — lasts  only  a  few 
years.  But  the  duration  of  gold  and  silver  is  vastly  longer.  In- 
vestigations made  at  the  United  States  Mint  show  that  the  wear 
of  gold  was  only  i  to  2,400 ;  that  is,  a  gold  dollar  would  wear 
out  only  by  2,400  years'  service. 

A  transcendent  reason  why  gold  and  silver  are  so  valuable  as 
money  is  their  uniformity  of  value.  The  necessity  of  having  com- 
modities which  will  always  possess  value,  and  which  will  fluctuate 
as  little  as  possible,  is  well  understood.  Burton  has  illustrated 
this  necessity  in  his  Lake  Regions  of  Central  Africa*  At  one  ot 
the  villages  which  he  visited,  the  value  of  money  was  liable  to 
perpetual     change,    often,    he    says,    causing    severe    loss    to    the 

*  p.  271;  see  Earth's  Central  A/rica,  vol.  2,  p.  55. 


MONEY    AND    ITS    USES.  93 

merchants  who,  after  providing  themselves  with  a  large  quantity 
of  it  (consisting  of  beads)  find  that  it  suddenly  becomes  unfashion- 
able and  consequently  useless.  I  may  promise  to  pay  a  thousand 
dollars  in  gold  ten  years  hence,  without  running  any  risk  that  it 
will  be  more  difficult  to  get  than  now.  There  is  such  abundance 
in  the  world,  I  would  probably  be  able  to  get  the  money  without 
paying  any  more  for  it  than  at  the  present  time ;  whereas,  if  I 
promised  to  pay  wheat,  for  instance,  it  might  be  very  difficult  to 
be  had.  The  crop  might  be  short,  and  if  I  was  able  to  get  it  at 
all,  I  should  be  obliged  to  pay  a  heavy  price.  Or  if,  on  the 
other  hand,  it  was  very  plentiful,  the  person  to  whom  I  have 
agreed  to  deliver  it  would  not  get  anything  like  an  equivalent  to 
that  given  to  me.  The  need,  therefore,  of  having  something  of  as 
nearly  unchangeable  value  as  possible,  is  very  great. 

It  is  impossible  to  discover  or  invent  anything,  the  value  of 
which  will  be  changeless.  The  value  of  gold  and  silver  is 
variable,  though  the  least  so  of  any  substances  known.  Conse- 
quently, as  long  as  their  value  remains  so  uniform,  they  are  ex- 
ceedingly useful  as  money.  One  reason  of  this  is,  because  they 
are  so  universally  desired.  Hence,  if  they  have  a  greater  value 
at  one  place  than  another,  they  instantly  begin  to  flow  towards 
that  place  where  their  value  is  smallest.  In  this  way  their  value  is 
kept  steady. 

To  complete  this  side  of  our  subject,  we  remark  that  gold  and 
silver  were  valuable  long  before  they  came  into  use  as  money. 
That  is  a  function  superimposed  upon  these  metals.  This  use  in- 
creases their  value,  but  it  is  not  the  sole  or  principal  cause  of 
their  value ;  or  the  cause  of  imparting  value  to  them  in  the  first 
place.  The  Wampumpeag  currency  of  the  American  Indians  was 
regarded    as    beautiful    by   them,    and    so    it   passed    as    currency. 


94  MONEY    AND    ITS    USES. 

The  same  is  true  of  gold  and  silver.  They  were  prized  before 
they  came  into  use  as  money,  else  they  never  would  have  been 
used  for  that  purpose.  Being  desirable  apart  from  their  use  as 
money,  they  are  found  admirably  fitted  to  serve  this  additional 
function,  and   so   are  used   for  this  purpose.* 

The  inquiry  may  be  pressed :  Why  did  gold  have  value  in  the 
beginning  ?  What  gives  value  to  anything  ?  Exchangeability,  which 
we  have  seen  to  be  one  of  the  causes  of  value,  springs  out  of 
the  manifold  desires  of  man.  Gold  and  silver  gratified  desire, 
the  same  as  diamonds,  pearls,  or  other  things.  When  gold  and 
diamonds  were  first  placed  in  the  canon  of  wealth,  it  is  easy 
enough  to  see  why  they  were  such  desirable  forms  of  wealth  to 
possess.  A  noble,  we  will  suppose,  has  a  large  estate  which  he 
wishes  to  convert  into  some  other  form  of  wealth  that  may  be 
easily  transported.  He  intends  to  go  a  long  distance.  He  can- 
not, of  course,  take  his  land  with  him,  and  it  would  be  very 
difficult  to  take  animals,  or  furniture,  or  any  bulky  merchandise. 
Besides,  he  might  be  robbed  of  these  things  on  the  way.  But  he 
converts  all  his  land  and  cumbrous  property  into  gold  and  dia- 
monds which  are  a  very  small  parcel,  and  that  he  can  easily  carry. 
There  is  less  fear  of  robbers,  for  few,  if  any,  know  that  he  has 
these  things  in  his  possession.  Again,  his  houses  and  lands  are  not 
so  desirable,  because  they  may  be  seized  by  his  sovereign.   A  quar- 

*  "  Gradually,  in  the  course  of  time,  and  by  the  exigencies  of  society,  they  came  to  be  ap- 
propriated by  general  consent  to  the  uses  of  money,  till  at  last  that  consent  became  universal 
in  the  civilized  world.  This  appreciation  was  ulterior  and  consequent  to  the  ascertainment  of 
the  many  useful  and  admirable  qualities  of  these  metals  for  other  purposes,  without  which 
there  is  no  probability  that  they  would  have  been  employed  as  money.  .  .  .  Gold  and 
silver  are  not  valuable  simply  because  they  are  money.  This  was  not  the  original  ground 
of  their  being  held  in  such  high  esteem ;  but  they  have  been  adopted  and  have  obtained  uni- 
versal consent  to  be  used  as  money  or  a  common  medium  of  exchange  because  of  their  value  for 
other  uses,  and  because  they  are  always  in  demand  for  such  a  vast  variety  of  appropriations 
other  than  money." — Colton's  Public  Economy.  See  also  on  the  Origin  of  Money ;  Patter- 
son's  Science  of  Finance,  p.  ii  ;    Mill's    Polit.  Econ.,  vol.  2,  p.  19. 


MONEY    AND    ITS    USES.  95 

rel  may  spring  up  between  them,  and  his  domains  may  be  invaded 
and  laid  waste.  But  if  nearly  all  his  property  consists  of  gold  and 
precious  stones,  he  can  conceal  them  from  his  destroyer  by 
burying  them  in  the  earth,  or  by  fleeing  with  them  to  a  distant 
country. 

Moreover,  wealth  was  originally  a  sign  of  social  rank,  and  is 
still  a  sign  of  power.  When  the  lord  lived  near  his  broad  acres, 
men  knew  what  his  rank  was,  from  the  fact  that  he  was  the 
owner  of  large  possessions.  Suppose  he  concludes  to  go  into  a 
country  where  he  is  not  known.  If  without  wealth  of  any  sort, 
he  is  regarded  as  belonging  to  the  common  herd  of  mankind. 
But  he  comes  wearing  gold  and  diamonds  and  other  marks  of 
great  wealth.  x\t  once  he  is  taken  to  be  a  person  of  elevated 
social  position,  for  one  without  such  a  position  could  not  be  the 
owner  of  so  much  wealth.  In  this  respect,  we  have  not  yet 
passed  much  beyond  the  same  rude  state  of  civilization.  Many 
people  still  wear  gold  and  diamonds,  because  being  wealth,  they 
confer  power,  even  if  they  do  not  rank.  People  look  up  to  men 
of  wealth  in  consequence  of  this ;  hence,  many  seek  for  those 
forms  of  wealth  which  may  be  easily  displayed.  They  like  the 
attention  it  draws.  But  let  diamonds  become  as  plentiful  as  the 
sands  in  which  they  are  found,  and  who  would  wear  them  ?  If 
they  were  once  prized  because  of  their  beauty,  they  are  not  so 
now,  for  let  abundant  mines  be  discovered  and  people  would  shake 
them  off  like  the  dust  of  the  street.  It  is  principally  the  idea  to 
be  considered  wealthy,  that  leads  men  and  women  to  wear  so 
much  wealth.  Let  a  person  who,  whether  wealthy  or  not,  cares 
to  make  no  display  of  it,  and  what  does  such  an  one  think  of 
diamonds  ?  He  does  not  wear  them  or  care  anything  about  them. 
This   desire  to  display  wealth  is  a  scar  of  a   barbarous   civilization, 


96  MONEY    AND    ITS    USES. 

which  will  disappear  when  wealth  ceases  to  be  a  source  of  power, 
and  intelligence  and  moral  goodness  are  enthroned  in  its  place.* 
It  by  no  means  follows  that  gold  and  diamonds  will  always  con- 
stitute wealth  because  they  are  so  regarded  to-day.  Yet,  so  long 
as  they  are,  and  so  long  as  they  can  be  Obtained  only  by  the 
expenditure  of  great  labor,  of  course,  a  small  quantity  will  have 
great  value,  and  will  remain  ver}^  desirable  forms  of  wealth. 

The  question  has  been  discussed  of  late,  how  much,  money  or 
currency  does  any  country  require  to  effect  its  exchanges.  The 
answers  generally  given  to  this  question  display  dense  ignorance. 
They  show  how  very  imperfectly  the  functions  of  money  are  un- 
derstood. It  is  looked  upon  by  many  as  a  mighty  question  which 
few,  if  any,  are  capable  of  answering.  This  is  because  such  per- 
sons do  not  comprehend  what  the  functions  of  money  are.  If  they 
did,  they  would  see  that  the  question  can  be  answered  easily 
enough. 

Whenever  the  business  of  a  country  has  become  adjusted  to  the 
currency  employed  in  making  its  exchanges,  whatever  the  amount 
may  be,  no  increase  thereof  is  ever  required.  This  is  one  of  the 
clearest  principles  of  economic  science.  It  makes  no  difference 
whether  the  volume  of  currency  be  great  or  small,  prices-  will  ac- 
commodate themselves  to  it;  and  if  the  amount  thereafter  be  in- 
creased, other  things  remaining  the  same,  the  only  effect  of  such 
increase  will  be  to  raise  the  price  of  commodities.  So  if  a  part 
of  the  currency  be  withdrawn,  the    effect  is  a  depression   of  prices. 

*  Coffin,  in  his  07tr  New  JVay  Round  the  lVo?ld,  thus  speaks  of  the  dress  and  ornaments 
of  a  Hindoo  woman  :  "  No  Western  lady  can  appear  in  such  gorgeous  costume,  as  the  Hindoo 
woman  before  us,  wearing  a  robe  of  Crimson  silk,  reaching  to  the  knees,  trimmed  with  yel- 
low bands  across  the  shoulder,  a  yellow  skirt  edged  around  the  bottom  with  cloth  of  sil- 
ver, beneath  which  is  an  underskirt  of  purple  silk.  There  is  silver  enough  in  the  broad 
rings  and  bands  clasping  her  ankles  for  a  set  of  tablespoons,  to  say  nothing  of  the  display 
on  her  arms,  round  her  neck,  dangling  from  her  ears  and  nose,  and  gleaming  on  her  fin- 
gers, or  of  what  she  has  lavished  upon   the  garmentless  child  toddling  by  her  side."     P.   119. 


MONEY    AND    ITS    USES.  97 

It  is  of  little  consequence  what  the  volume  of  currency  may  be 
with  which  a  nation  first  begins  to  exchange  its  productions. 

Now,  as  long  as  a  nation  sticks  to  the  currency  it  has  once 
adopted,  and  to  which  all  values  have  been  adjusted,  there  is  no 
difficulty  in  effecting  exchanges,  provided  that  such  a  currency 
commands  the  perfect  confidence  of  all.  There  will  be  no  vio- 
lent disturbance  in  exchanging  commodities  while  the  same  cur- 
rency is  used  on  account  of  it.  If  exchanges  are  disturbed,  they 
will  arise  from  other  causes  than  the  currency.  Like  the  sun,  it 
will   pursue  its  appointed    course   without  interruption  or  change. 

When  a  currency  having  the  confidence  of  all  is  supplanted  by 
an  inferior  currency,  then  exchanges  are  unsettled  on  account  of 
it.  Let  it  be  remembered  that  no  sound  currency  disturbs  ex- 
changes. If  the  currency  employed  by  a  country  produces  this 
effect,  it  is  certain  that  such  a  currency  is  unsound.  In  the 
United  States  we  have  driven  out  a  sound,  specie  currency  by 
means  of  an  inferior,  paper  currency.  While  the  former  was  in 
use,  we  were  never  troubled  with  the  inquiry:  How  much  of  it 
does  the  country  need?  The  currency  was  self-regulating;  it  was 
free  from  legislative  regulation.  But  when  it  was  supplanted  by 
the  present  currency,  exchanges  were  violently  unsettled,  and  will 
remain  so  as  long  as  it  is  below  par.  The  more  local  a  currency, 
the  more  violent  are  its  fluctuations  in  value,  while  the  converse 
of  the  proposition  is  equally  true.  Gold  and  silver  have  a  wide 
circulation,  and  their  value  in  all  places  is  the  same ;  but  our 
paper  currency  has  no  circulation  outside  of  our  own  country, 
hence  its  value  is  very  unstable. 

Keeping  these  facts  in  mind,  it  is  easy  enough  to  answer  the 
question :  How  much  of  this  paper  currency  does  the  country 
need?  The  less  of  it  the  better  while  it  continues  below  par  with 
8 


98  MONEY    AND    ITS    USES. 

gold.  If  it  be  an  inferior  currency,  as  it  certainly  is  compared 
with  gold  and  silver,  we  should  not  make  it  poorer  by  watering 
it,  but  rather  contract  the  quantity  and  so  improve  its  quality. 
The  country  needs  no  more  of  it;  there  is  altogether  too  much 
now. 

Besides,  by  increasing  its  quantity,  its  purchasing  power  is  dimin- 
ished, so  that  the  aggregate  purchasing  power  of  the  larger  amount 
is  no  greater  than  that  of  the  smaller  sum.  When  an  individual 
gives  his  notes  for  $100,000  and  has  only  half  that  sum  to  pay 
them  with,  and  his  creditors  know  it,  every  one,  except  he  be  an 
inflationist,  believes  the  debtor  will  neither  improve  nor  sustain  his 
credit  by  issuing  more  notes.  The  same  is  as  true  of  the  Govern- 
ment as  of  individuals.  Its  legal-tender  notes  are  below  par.  The 
people  prefer  gold  to  them.  By  issuing  more  their  value  will 
diminish.  There  is  no  escape  from  this  effect.  The  Government 
by  no  sort  of  ingenuity  can  increase  the  aggregate  purchasing 
power  of  the  currency  as  long  as  it  is  at  a  discount.  By  issuing 
more,  its  purchasing  power  is  diminished,  and  the  country  has  no 
larger    amount    in    fact  with  which    to    make  exchanges. 

We  conclude — first,  there  is  too  much  currency  now,  and  the 
excess  will  be  felt  so  long  as  it  is  worth  less  than  gold,  which  is 
promised  in  redemption  of  it;  secondly,  while  its  mferiority  to 
gold  continues,  the  question  whether  the  country  wants  more  of  it 
or  not  is  without  any  significance,  because  the  country  by  no  kind 
of  legerdemain  can  actually  get  more  if  it  be  wanted.  Of  course 
a  larger  amount  may  be  issued,  but  its  value  is  entirely  absorbed 
by  the  currency  existing  before. 

When  the  currency  of  a  country  is  sound,  its  value  depends 
upon  three  things :  first,  the  amount  of  business  done  there ; 
secondly,  the  extent  of  its  credit ;    thirdly,  the  rapidity  with  which 


MONEY    AND    ITS    USES.  99 

its  money  circulates.  If  business'  is  light,  or  money  circulates 
rapidly,  or  credit  be  extensive,  less  money  is  needed  than  if  the 
opposite  conditions  prevail,  and  so  its  value  is  less. 

Money  circulates  more  ra])idly  through  the  agency  of  banks 
than  in  any  other  way.  By  keeping  money  in  these  institutions 
they  are  able  to  loan  it  again  and  again ;  one  person  deposits  a 
sum,  it  is  discounted  to  another,  lie  pays  it  into  another  bank, 
which,  in  turn,  discounts  it  to  some  one  else.  Any  report  of  the 
Comptroller  shows  this.  The  amount  of  the  National  circulation, 
according  to  his  report  for  1873,  on  the  12th  of  September,  was 
$339,081,799,  while  the  loans  amounted  to  $940,233,304.  Of 
(H)urse  there  was  the  legal-tender  circulation  of  $356,000,000  l)e- 
sides ;  on  the  other  hand,  a  large  amount  of  currency  was  in  the 
possession  of  the  people.  From  these  facts  it  is  clear  that  cur- 
rency circulates  more  activel\-  through  the  agency  of  banks  than 
through    the   action  of   indi\i(luals. 

'I'he  use  of  credit  in  its  various  forms,  bank  checks,  bills  of  ex- 
change, etc.,  supply  the  place  of  money.  U'c  shall  discuss  here- 
after the  matter  of  the  extcilsion  of  credits  in  this  country  and 
how  they  operate  to  lessen  the  need  for  money.  England  has 
not  so  much  currency  as  France,  though  doing  a  vaster  business, 
yet  her  exchanges  are  easily  made  by  means  of  the  various  in- 
struments of  credit.  In  France,  money  is  absorbed,  hoarded :  in 
P^NGLAND,  it  is  deposited  in  banks  and  kept  in  circulation.  When 
the  German  indemnity  was  paid  by  France  and  new  loans  con- 
trai'.ted,  it  was  a  world's  wonfler  that  such  an  immense  throng 
should  gather  in  Paris  to  subscribe  for  the  loan.  They  came  from 
all  parts  of  France.  It  was  the  country,  farming  population. 
'I'hey  had  laid  by  money,  and,  instead  of  depositing  il  in  banks, 
it  had  been  kept   in  their  houses.      The    loan    being    regarded    safe, 


lOO  MONEY   AND    ITS    USES. 

the  money  was  drawn  forth.  The  reflection  is  not  creditable  to 
that  country  that  such  a  vast  throng  should  be  without  confidence 
in  the  Bank  of  France,  or  its  branches;  or  rather,  that  France 
should  have  no  money  institution  commanding  the  confidence  of 
the  people  except  the  Government  itself. 

This  fact,  that  credit  serves  the  same  purpose  as  money  in 
liquidating  debts,  proves  the  necessity  of  maintaining  it  whenever 
possible,  in  order  to  avoid  panics  and  the  necessity  of  providing 
additional  currency  when  they  occur.  For  when  these  calamities 
arise  and  confidence  or  credit  is  gone,  more  currency  will  be  re- 
quired than  at  other  times.  Thus  in  the  panic  of  1873,  every- 
body wanted  money ;  no  one  dared  to  trust.  Many  at  once  came 
to  the  conclusion  that  the  country  needed  more  currency ;  that 
business  had  increased  so  enormously  the  present  amount  was 
inadequate  to  make  exchanges.  No  one  said  this  a  week  before 
the  panic.  Why  not  ?  Because,  in  fact,  there  was  enough.  So 
long  as  confidence  was  generally  diffused  there  was  no  need  of 
additional  currency.  The  panic  destroyed  that,  and  then  the  de- 
mand for  more  money  was  universal.  Upon  the  restoration  of 
confidence,  no  more  money  was  needed  than  before.  This  is  the 
true  explanation  of  the  state  of  things  which  prevailed.  When 
confidence  was  strong  there  was  money  enough;  when  confidence 
disappeared,  more  money  was  required  to  supply  the  place  which 
confidence  had  filled. 


VIII. 


DECLINE    IN    THE    VALUE    OF   GOLD    AND    SILVER. 


Nearly  all  political  economists  agree  that  the  value  of  gold  and 
silver  is  depreciating.  This  depreciation  arises  chiefly  from  three 
causes  :  the  larger  supply ;  its  lessening  demand  for  ornamental  use  ; 
and  the  substitution  of  other  things  for  money. 

In  respect  to  the  present  supply,  much  labor  has  been  expended 
to  ascertain  the  production  of  gold  and  silver  since  the  earliest 
times,  yet  no  results  thus  far  obtained  command  a  very  wide  as- 
sent. In  1 83 1,  Mr.  Jacob  published  an  elaborate  Historical  In- 
quiry into  the  Production  and  Consumption  of  the  Precious  Metals, 
covering  the  field  of  investigation  from  the  earliest  ages  to  the 
time  in  which  he  wrote.  This  work,  though  abounding  in  wide 
research,  is,  after  all,  only  an  estimate,  and  that  even  very  rude 
and  imperfect  in  respect  to  the  production  of  the  precious  metals 
during  the  earlier  ages.  Indeed,  the  difficulties  of  finding  out  the 
production  and  consumption  of  the  precious  metals,  says  M'CuL- 
LOCH,  are  "  at  least  as  great  as  their  importance.  They  are  not, 
in  truth,  of  a  kind  to  afford  any  certain  conclusions,  and  we  must 
be  contented  with  those  that  seem  to  present,  on  the  whole,  the 
greatest  amouot  of  probability."  For  the  production  of  gold  and 
silver   in    America,  from    the    discovery    of  the    country    to    1803, 


I02  DECLINE    IN    THE    VALUE 

great  reliance  has  been  given  to  Baron  Humboldt's  estimate  in 
his  Political  Essay  upon  the  Ki/ii^do/ii  of  New  Spain,  though  Mr. 
Danson,*  who  carefully  studied  Humboldt's  figures,  together 
with  the  data  pertaining  to  the  subject,  has  found  reason  to 
amend  them.  Chevalier  has  carefully  gone  over  the  ground  in 
his  work  upon  the  Probable  Fall  in  the  Value  of  Gold,  though 
Blake's  Report  upon  the  Precious  Metals,  made  to  the  United  States 
Government  in  1867,  is  the  latest,  and  probably  the  best,  exposi- 
tion on  the  subject. t 

The  aggregate  production  of  gold  and  silver  to  1868,  according 
to  Blake's  estimates,  is  as  follows : 

14  to     800 (Amounts  supposed  to  be  on  hand) $1,790,000,000 

800  to   1492 345,000,000 

1492  to   1803 5,820,700,000 

1803  to   1848 2,484,000,000 

1S48  to   1868 3,571,000,000 

Grand  total $  14,010,700,000 

From  this  amount  the  losses  are  to  be  deducted,  which  are  as 
difficult  to  ascertain  as  the  amount  produced.  Indeed,  if  possible, 
there  is  less  agreement  among  writers  in  respect  to  the  loss  of 
gold,  than  to  the  amount  now  remaining. 

As  for  the  future  supply  it  is  well  known  that  gold  is  derived 
from  two  sources — placers  and  veins.  That  found  in  the  placers 
was  originally  contained  in  the  rocks,  which  has  been  extracted 
by  the  grand  operations  of  nature.  Streams  have  rolled  over 
them  for  unnumbered  ages,  breaking  and  grinding  them  to  pieces, 
washing  out  the  gold  and  carrying  it  along  in  their  courses  till  it 
sank  to  the   bottom.      Placer-mining,  therefore,  is    nothing    but    the 

*  yoiirnal  of  Statistical  Society  of  London,  vol.  14. 

1  See  also  Commissioner  Wilson's  learned  investigation  in  Land  Office  Report,  1867.  His 
researches  are  very  valuable. 


OF    GOLD    AND    SILVER.  103 

digging   over    the    beds  of  streams    and    r[vers    that    have    become 
dry,  and  in  which  gold  is  supposed  to  be  deposited. 

Once  it  was  thought  that,  as  the  soil  containing  gold  which  had 
been  thus  extracted  by  nature  from  the  rocks,  was  quite  limited 
in  extent,  when  it  had  been  worked  over,  the  future  supply  of 
gold  would  be  exhausted.  Such  was  the  opinion  expressed  by  the 
late  Sir  R.  I.  Murchison  in  his  valuable  work  upon  the  Siiiina. 
But  now  it  is  generally  acknowledged  that  the  normal  supply  of 
gold  is  to  be  derived  from  the  rocks,  and  that  the  gold  found  in 
placers  is  only  a  small  portion  of  the  whole  amount.  This  being 
so,  it  is  clear  that  the  future  supply  of  gold  depends  upon  the 
extent  and  productiveness  of  the  gold-bearing  rocks. 

Murchison  strongly  maintained  that  the  productive  gold-veins 
were  confined  chiefly  to  the  Silurian  rocks,  and  that  the  quantity 
which  they  might  yield  would,  not  very  long  hence,  be  exhausted. 
The  gold-bearing  rocks  in  the  Ural  Mountains,  in  Australia,  and 
to  a  considerable  extent,  in  California,  belong  to  the  Silurian 
period.  If  "  we  cast  our  eyes  to  the  countries  watered  by  the 
Pactolus  of  Ovid,  to  the  Phrygia  and  Thrace  of  the  Greeks,  to 
the  Alps  and  golden  Tagus  of  the  Romans,  to  the  Bohemia  of 
the  Middle  Ages,  to  tracts  in  IJritain  which  were  worked  in  old 
times,  and  have  either  been  long  abandoned  or  are  now  scarcely 
at  all  productive,  or  to  those  chains  in  America  and  Australia, 
which,  previously  unsearched,  have  in  our  times  proved  so  rich;"* 
in  all  these  lands  gold  has  been  imparted  abundantly  to  only  the 
Silurian  or  the  associated  eruptive  rocks.  Yet  it  has  been  conclu- 
sively proved  since  the  time  when  the  first  edition  of  Murchison's 
Siluria  was  published,  that  gold  abounds  in  rocks  of  every  geo- 
logical   age.     The  explorations  of   '1'rask    and    Whitney    in    Cal- 

*  Murchison's  Siluria,  p.  475,  3d  ed. 


I04  DECLINE    IN    THE    VALUE 

IFORNIA  in  1853  and  54;  and,  subsequently,  the  discovery  of 
secondary  fossils  in  the  main  belt  of  gold-bearing  slates;  together 
with  the  discoveries  in  Hungary  in  1862, — prove  that  rocks  be- 
longing to  the  latest  geological  periods,  even  as  late  as  the 
Tertiary,  contain  productive  gold-bearing  veins.* 

Again,  later  geological  investigation  has  shown  that  the  quantity 
contained  in  the  rocks,  and  which  is  accessible,  is  more  abundant 
than  geologists  formerly  supposed.  Murchison  maintained  that 
the  gold-veins  parted  as  they  descended  into  the  rocks,  till  they 
became  mere  threads  that  could  not  be  followed  or  worked  to 
advantage.  Mr.  Selwyn,  in  his  report  to  the  English  Govern- 
ment at  Australia  in  1856  and  57,  on  the  mining  resources  of 
the  colony  of  Victoria,  declared  that  there  was  no  evidence  from 
the  mines  in  that  place  to  sustain  Murchison's  position  that  any 
vein  rich  at  the  surface  dies  out  or  suddenly  becomes  unprofitable. 
It  was  true  that  the  upper  portion  of  many  veins  were  once  far 
richer  than  they  are  now.  But  the  reason  was  very  apparent.  The 
gold  had  been  removed  by  denudation.  The  very  fact  that  many 
veins,  even  thus  abraded,  were  still  often  very  rich  on  their  pres- 
ent surface,  went  far,  in  his  opinion,  to  prove  that  the  diminution 
of  yield  in  depth,  even  though  admitted  to  be  true  on  a  large 
scale,  was  still  so  slow  as  not  to  be  appreciable  within  any  depth 
to  which  ordinary  mining  operations  might  be  carried.  Raymond, 
in  his  report  to  the  United  States  Government  in  1870,!  said  that 
most  of  the  gold-veins  might  be  considered  as  practically  inex- 
haustible in  depth.  Indeed,  the  statement  of  Murchison,  accord- 
ing to  this  authority,  "  is  completely  overthrown  by  experience." 
Mr.  J.  Arthur    Phillips   speaks  the   opinion    now  universally  ac- 

*  See  Whitney's  Geology  ^nA  review  of  same  in  Sill,  your.,  vol.  41,  pp.  231  and    351,  second 
series;    Sill,  your.,  vol.  45,  p.  334,  second  series, 
i  p.  457-  • 


OF    GOLD    AND    SILVER, 


105 


knowledged,  that    gold    ledges    are    not  more   liable  than    ordinary 
metalliferous  veins  to  become  impoverished  in  depth,* 

•Gold  is  found  in  almost  every  part  of  the  world.  The  richest 
mine  thus  far  discovered  is  the  Morro  Velho  mine  in  Brazil, 
The  gold  region  in  Russia  has  been  constantly  expanding  by  new 
discoveries,  till  it  has  reached  to  the  Pacific,  Indeed,  the  dis- 
tribution of  gold  may  be  regarded  as  co-incident  with  the  mount- 
ain chains  of  the  globe.  There  is  no  extended  region,  no  great 
political  division  of  the  globe,  without  its  gold-field. t  Quite  re- 
cently, Mr.  PumpellyJ  has  published  a  work  showing  that  gold 
deposits  exist  in  almost  every  province  of  the  Chinese  Empire. 

The  production  of  silver  in  modern  times  was  quite  limited,  till 
the  discovery  of  the  Comstock  mine  in  Nevada.  Since  1862, 
about  $  80,000,000  have  been  extracted  therefrom.  Silver  is  very 
often  found  in  connection  with  lead;  and  as  lead  veins  expand 
largely  as  they  descend  from  the  surface  of  the  earth,  Murchison 
has  declared  that  the  lead  mines  will  probably  yield  enormous 
quantities  of  silver  for  ages  to    come. 

Now,  if  the  gold  and  silver  mines  are  capable  of  as  rich  yield 
in  the  future    as  in  the  j)ast,  the  value  of  those  metals  will  greatly 

*  "  Recent  observations  and  experience  appear  to  lead  to  three  important  conclusions — first 
that  the  most  productive  gold-bearing  rocks  are  by  no  means  exclusively  confined  to  the  Silurian 
period;  secondly,  that  aqueous  agencies  have  been,  and  still  are,  actively  at  work  in  the  forma- 
tion of  mineral  deposits;  and,  thirdly,  that  gold  ledges  are  not  more  liable  than  ordinary  metal- 
liferous veins  to  become  impoverished  in  depth." — The  Mining  and  Metallurgy  of  Gold  and 
Silver,  by  J.  Arthur  Phillips.  R.  Rrough  Smyth,  in  his  Gold-Fields  of  Victoria,  maintains' 
a  similar  view.  He  says,  after  examining  two  hundred  veins,  that  "  taking  the  whole  of  the  in- 
formation and  results  obtained  into  consideration,  there  is  much  reasonable  evidence  produced 
in  support  of  the  theory  that  quartz  reefs  are  richer  as  they  increase  in  depth,  and  in  addition 
to  this,  that  they  arc  wider." 

t  Bl.mce's  Report,  p.  235. 

J  Smithsonian  Contributions,  Oct.,  1866.  R.  Brough  Smyth  has  written,  in  his  work  pre- 
viously quoted,  that  the  area  of  the  Australian  gold-fields  yet  unexplored,  01  imperfectly  so,  is 
vastly  greater  thaA  any  other  upon  the  Pacific  slope  of  North  America.  Of  the  20,000,000 
acres  of  gold-fields  in  Victoria,  not  more  than  600,000  acres  have  been  explored,  while  many  of 
the  oldest  mines  are  yielding,  by  improved  methods,  better  results  than  ever  before. 


Io6  DECLINE    IN    THE    VALUE 

decline.  It  cannot  be  denied  that  the  increased  supply  of  gold 
has  sensibly  diminished  its  value  several  times  in  the  history  of 
the  world. 

During  the  period  between  the  commencement  of  the  Persian 
wars  and  the  age  of  Demosthenes,  the  precious  metals  became 
very  plentiful  in  Greece.  Their  value,  consequently,  greatly  de- 
preciated ;  as  well,  also,  as  in  the  time  of  Constantine  the  Great, 
who  caused  money  to  be  coined  from  the  precious  articles  found  in 
the  heathen  temple.  * 

When  Julius  C^sar  was  emperor  of  Rome,  he  brought  such 
masses  of  gold  into  the  money  market  at  Rome,  according  to 
MOiMSEN,  t  that  it  fell  in  value,  as  compared  with  silver,  about 
twenty-five  per  cent. 

It  is  a  clearly  established  fact  that  the  value  of  gold  has  de- 
clined in  civilized  countries  since  the  discovery  of  the  gold  mines 
in  California  and  Australia. 

Prof.  Jevons|  asserts,  with  the  utmost  confidence,  that  there  has 
been  a  rise  of  prices  in  England  to  the  extent  of  eighteen  per 
cent.,  as  measured  by  fifty  chief  commodities,  since  the  year  1849. 
This  rise  of  prices  represents  a  real  diminution  in  the  general  pur- 
chasing power  of  gold  to  that  extent.  Yet  others,  including  Prof. 
Cairnes,  suppose   the    decline  to  be  much   greater,  for  the   reason 

*  See  Boeckh's  Public  Economy  of  the  Athenians,  p.  14,  Eng.  translation. 
•  tVol.  4,  p.  343.  English  transl.,  new  ed.  Polybius  says,  that  in  his  time  the  gold  mines 
were  so  rich  about  |  north  of]  Aquileia,  but  especially  in  the  country  of  the  Taurisci  Norici, 
that  if  you  dug  but  two  feet  below  the  surface,  you  found  gold,  and  that  the  diggings  (gene- 
rally) were  not  deeper  than  fifteen  feet;  that  in  some  instances  the  gold  was  found  pure,  in 
lumps,  the  size  of  a  bean  or  a  lupin,  and  which  lost  only  one-eighth  in  smelting;  in  others  it 
required  more  smelting,  but  was  very  profitable.  Italians  aiding  the  barbarians  in  the  working 
for  two  months,  gold  became  forthwith  one-third  cheaper  over  the  whole  of  Italy  ;  and  the 
Taurisci  discovering  this  drove  the  associate  Italians  away  and  monopolized  it  themselves.  At 
present  all  gold  mines  belong  to  the  Romans.  Strabo,  book  4,  chap.  6,  ^c.  12,  quoted  in 
Murchison's  Siluria,  p.  475. 

\  London  Economist,  May,  1867. 


I 


OF    GOLD    AND    SILVER.  I07 

that  the  course  of  prices  previous  to  1849,  was  decidedly  down- 
wards, so  that  the  increased  supply  of  gold  prevented  a  greater  de- 
cline of  them,  and  also  occasioned  the  rise  above  stated.  In  his 
volume  of  essays,  published  in  1873,  he  reaffirms  his  former 
opinions.  He  says:  "all  are  agreed  that  within  twenty  years  a  sub- 
stantial advance  in  general  prices  has  taken  place,  the  only  differ- 
ence of  opinion  is  in  respect  to  the  causes  of  this  change. 
Amongst  economists  1  think  it  is  pretty  well  agreed  that  the 
advance  is,  at  least  in  large  measure,  due  to  the  effects  of  the 
gold  discoveries.  But  on  the  other  hand,  there  is  on  the  part  of 
commercial  writers,  and  in  general  of  all  who  view  the  (question 
from  the  stand-point  of  practical  business,  a  strong  disposition  to 
ignore,  or  altogether  to  deny,  the  influence  of  this  cause  in  deter- 
mining the  results."  We  are  among  those  who  think  Prof.  Cairnes 
is  right,  that  gold  has  declined  in  value,  for  the  evidence  in  su])- 
port    of  this  conclusion  will  admit  of  no  other  explanation. 

In  this  country  the  decline  has  been  very  marked  since  i860. 
Elsewhere,  we  have  compiled  a  table  of  prices  showing  what 
the  decline  has  been  in  one  hundred  of  the  leading  American 
])roducts.  Other  things,  in  the  production  of  which  more  labor 
has  entered,  the  decline  has  been  greater. 

The  decline  in  the  value  of  these  metals  would  have  been  still 
greater  had  not  an  immense  quantity  been  drained  off  to  the  East. 
If  A  does  not  want  a  thing  it  is  only  a  slight  indication  that  it  has 
no  value  ;  for  £>  and  C  may  want  it,  and  if  they  do,  of  course  it 
is  valuable,  although  valueless  to  A.  Hence,  the  ])recious  metals, 
so  long  as  they  have  a  value  among  a  considerable  number  of 
people,  though  not  among  all,  their  value  will  be  preserved.  Thus, 
silver,  for  instance,  may  l^ecome  valueless  among  the  most  en- 
lightened   nations     as    between    themselves,    yet    so    long    as    such 


Io8  DECLINE    IN    THE    VALUE 

quantities  of  it  are  desired  by  the  inhabitants  of  China  and 
India  as  are  at  present,  its  value  will  not  be  materially  lessened. 
For  many  years  these  countries  have  absorbed  vast  quantities  of 
silver,  else  its  value  long  ago  would  have  declined.  It  is  for 
this  reason,  says  Patterson,  that  the  prosperity  of  the  world  de- 
pends upon  the  continuance  of  this  drain  of  bullion  to  the  East."* 

The  value  of  gold  and  silver  will  decline  from  the  increas- 
ing use  of  other  things  as  substitutes  for  money.  The  use  of 
bank  notes,  bank  checks,  bills  of  exchange,  etc.,  as  substitutes  for 
gold  in  making  exchanges  has  become  universal.  For  example, 
the  New  York  Clearing-House  Association,  representing  sixty-one 
banks,  received  for  the  year  ending  September  30,  1872,  checks, 
bills  of  exchange,  etc.,  given  by  the  several  banks  composing  the 
association,  $  33,844,369,568.  The  use  of  this  vast  amount  of 
substitutes  in  place  of  gold  and  silver  has  a  direct  influence  in  de- 
preciating the  value  of  these  metals.  Let  an  edict  go  forth  that 
no  such  instruments  could  be  used,  or  rather,  supposing  that  all 
men  were  so  corrupt  that  no  one  dared  to  use  them,  and  the 
precious  metals  would  enormously  increase  in  value.  Hence,  it 
may  be  properly  said  that  gold  and  silver  are  declining  in  value 
because  credit  or  willingness  to  trust  others  has  increased.  It  is 
one  of  the  marks  of  an  improving  civilization.  The  substitution 
of  the  various  instruments  of  credit  for  gold  is  attended  with 
many  evils,  arising  from  unwillingness  and  inability  to  comply  with 
their  requirements;  but  as  the  infirmities  of  human  character  dis- 
appear, notes  and  promises  of  every  kind  will  have  general  prefer- 
ence over  gold  and  silver  as  instruments  of  exchange. 

Gold  and  silver  will  decline  in  value  as  their  use  for  orna- 
ment  declines.      Probably  it   was   this   use   which  first    gave   them 

*  See  Fawcett's  Man.   of  Polit.  Econ.,  p.  ^36. 


OF    GOLD    AND    SILVER.  IO9 

value.  Ornaments  are  worn  for  two  reasons ;  one,  to  beautify 
the  person ;  the  other,  to  indicate  rank  and  wealth.  So  long 
as  gold,  silver,  and  diamonds,  are  regarded  as  beautiful,  they 
will  be  worn,  for  not  less  pains  will  be  taken  to  adorn  the 
person  in  the  coming  ages  than  in  the  past;  but  as  indications 
of  rank  and  power,  they  will  one  day  cease  to  be  worn,  and 
with  every  declining   use  their  value  is  diminished. 

And,  lastly,  the  value  of  gold  and  silver,  and  kindred  forms  of 
property,  which  depend  largely  upon  the  fact  that  much  value  is 
contained  in  a  small  space,  will  decline  when  other  and  more  cum- 
brous forms  of  property  become  secure  from  seizure  and  intrusion. 
As  society  advances,  and  its  laws  become  more  clearly  defined, 
more  equable  in  their  operation,  and  more  surely  and  wisely 
executed,  the  desire  to  have  property  compressed  into  such  forms 
that  they  may  be  quickly  concealed,  or  transported  with  less 
danger  of  loss,  will  pass  away.  With  this  improved  state  of 
society,  its  members,  instead  of  converting  their  wealth  into  the 
form  of  gold  and  diamonds,  will  build  houses  and  enrich  them 
with  the  works  of  genius  and  art — a  tendency  which  is  now 
clearly  seen  in  this  country  and  in  Europe.  Then,  wealth  will 
be  displayed  on  canvas  and  in  marble,  instead  of  upon  the  body; 
in  things  that  will  minister  not  to  the  gratification  of  one  man 
alone,  and  to  him  only  for  an  hour,  but  to  many  persons  and  for 
centuries  to  come.  In  short,  as  the  laws  of  property  become 
more  secure,  it  is  evident  that  the  forms  which  wealth  assumes 
will  be  greatly  changed.  Thus  gold  and  silver  and  the  precious 
stones  will  be  of  little  account,  except  as  they  may  be  useful  in 
the  arts.* 

*  One  cause  arresting  the  fall  of  gold  is  the  nicrcase  of  population ;  that  is,  population  has 
kept  up  the  demand. 


no  DECLINE    IN    THE    VALUE 

We  do  not  believe  that  gold  and  silver  would  circulate  for  a 
moment  apart  from  their  intrinsic  value — that  is,  apart  from  their 
value  as  wealth,  apart  from  their  capacity  to  satisfy,  immediately, 
human  desires.  We  know  some  hold  that  the  chief  value  of 
money  to-day  consists  in  its  use  as  money,  and  this  view  we 
think  contains  much  truth.  Originally,  it  was  regarded  as  wealth 
in  almost  all  cases  in  which  it  was  taken ;  whereas  this  earlier  use 
has  been  superseded  by  another,  namely,  its  capacity  to  bring  us 
other  things  besides  itself  that  we  desire.  But  when  it  ceases  to 
be  wealth,  it  will  cease  to  circulate  at  all.  A  merchant  bought  a 
certain  kind  of  goods  last  spring,  because,  being  fashionable  then, 
they  could  be  readily  sold ;  but  he  declines  to  buy  the  same  kind 
this  spring,  because,  being  unfashionable  now,  they  do  not  com- 
mand a  ready  sale.  So  it  is  with  gold  and  silver.  When  they 
are  no  longer  regarded  as  wealth,  they  will  not  circulate  as  money, 
for  nobody  will  take  or  buy  them.  Everyone  will  be  afraid  to  re- 
ceive them  lest  they  cannot  be  passed  off.  True,  they  have  not 
changed  in  appearance  or  composition  any  more  than  the  goods 
previously  spoken  of,  but  that  makes  no  difference;  man  is  om- 
nipotent over  his  desires,  and  the  fact  that  he  wanted  a  thing  yes- 
terday will  not  rekindle  the  desire  to-day.  Hence,  we  cannot 
agree  with  those  who  hold  that  gold  and  silver  will  continue  to 
circulate  as  money  after  they  cease  to  be  wealth;  they  may  for  a 
time,  till  people  find  out  that  their  value  is  gone,  just  as  a  bad 
coin  will  circulate  quite  as  well  as  a  good  one  till  people  find  out 
that  it  is  bad.  But  when  people  do  find  out  that  gold  is  no 
longer  wealth,  it  will  not  be  wanted  for  any  quality  still  inhering 
in  it.  Its  value  will  irresistibly  vanish,  just  as  the  value  of  every- 
thing else  vanishes  which  is  no  longer  desired.  Gold  and  silver 
are  subject  to  no  peculiar  laws  by  which  they  will   remain  buoyant 


OF    GOLD    AND    SILVER.  Ill 

in  defiance  of  those  laws  which  sink  everything  of  a  kindred  nature 
to  the  bottom.  Consequently,  when  gold  and  silver  and  diamonds 
cease  to  be  wealth,  and  the  world  finds  it  out,  they  will  become 
worthless. 

Such  are  the  principal  reasons  operating  to  depress  the  value  of 
gold  and  silver,  and  which,  it  is  evident,  will  continue  to  thus 
operate.  Gold  will  multiply  in  quantity ;  the  day  of  barbaric  gold, 
of  which  Milton  disdainfully  spoke,  will  surely  pass  away,  while 
its  departure  is  hastening  by  the  use  of  substitutes  for  it,  as  money, 
as  well  as  in  other  ways. 

Two  consequences  flow  from  the  loss  of  value  accruing  to  gold 
and  silver  worthy  of  notice.  First,  those  having  it  in  their  pos- 
session, or  due  them,  will  suffer  loss.  The  loss  of  one  class,  how- 
ever, will  be  the  gain  of  another,  and  in  this  way  there  will  be  a 
partial  evening  up  of  the  accounts  between  mankind.  But  Govern- 
ments will  be  the  greatest  gainers.  In  this  way,  nearly  all  Na- 
tional indebtedness  will  be  discharged,  inasmuch  as  tliis  is  the 
thing  which  most  of  them  have  agreed  to  pay.  Secondly,  there 
will  be  a  great  saving  of  human  labor  in  preparing  an  instrument 
to  be  thereafter  used  as  money.  Patterson  has  well  put  the 
question :  "  Is  it  not  probable  that  some  day  .  .  future  genera- 
tions enjoying  a  more  advanced  civilization,  will  look  back  with 
pity  on  our  barbarism  in  wasting  so  much  wealth  for  the  mere 
purpose  of  registering  our  wealth,  and  in  employing  such  an  infini- 
tude   of  labor  upon    what    could    be  accomplished  without    any."  * 

Little  do  we  think  of  the  suffisrings  and  risk  of  life  which  poor 
humanity  has  endured  to  get  possession  of  these  shining  metals. 
When  the  Californian  mines  were  discovered,  husbands  forsook 
their  wives,  and    brothers  their  sisters,  the  emigrant  came  from  the 

*  F.coH.  of  Capital,   p.   lo. 


112  DECLINE    IN   THE    VALUE    OF    GOLD    AND    SILVER. 

farthest  shore,  and  all  went  and  delved  for  the  precious  gold. 
They  endured  privation  of  hunger  and  thirst,  laboring  under  the 
greatest  exposure  of  body  to  disease  and  death — and  simply  to 
obtain  these  counters  for  making  exchanges.  The  story  of  Cali- 
fornia was  repeated  in  Australia.  When  that  most  auriferous 
country  was  discovered,  thousands  flocked  thither  to  dig  for  gold. 
The  Buckland  river,  where  the  largest  nuggets  were  found,  was 
literally  a  river  of  death.  The  rays  of  the  sun,  striking  the 
rocks  upon  either  side,  reflected  upon  the  faces  of  the  miners, 
and  caused  a  worse  blindness  than  that  which  befel  them  before 
setting  out  for  the  diggings.  A  little  way  down  the  river  was  the 
cemetery  where  the  miners  were  laid,  so  that  every  fresh  miner 
was  reminded  of  his  probable  fate,  as  he  passed  on  his  way  to 
the  mines.  Nothing  daunted,  however,  they  hurried  on  to  meet 
the  fate  of  those  who  had  gone  before,  and  the  multitude  of 
graves  remaining  to  this  day  testify  of  the  magic  and  bewitching 
power  of  gold.  Great  as  has  been  the  acknowledged  power  of 
woman,  cannot  this  dull  metal  claim  a  greater  homage  and  de- 
votion ?  But  its  sovereignty  is  to  cease;  all  its  long,  painful 
history  of  conquests  and  sufferings    is    to  pass  away. 


IX. 


THE     MONEY     OF     THE     FUTURE, 


We  have  not  prepared  this  chapter  with  a  view  to  setting  forth 
any  Utopian  or  useless  scheme,  but  to  answer  the  assertion  that 
gold  and  silver  will  continue  to  be  used  as  money  in  the  indefinite 
future,  because  there  is  nothing  to  put  in  their  place.  The 
necessity  of  money  being  universally  admitted,  and  nothing  hav- 
ing been  discovered  to  supply  the  use  of  the  precious  metals  for 
that  purpose,  the  conclusion  is  drawn  that  they  will  be  employed 
in  that  capacity  always.  Admitting  the  truth  of  the  first  premise, 
we  deny  the  second,  and  of  course  the  conclusion. 

We  have  already  shown  that  money  performs  a  two-fold  func- 
tion; that  it  is  a  measure  of  value  and  a  medium  of  exchange. 
In  respect  to  the  latter  function,  a  representative  of  gold  and 
silver  in  the  form  of  paper  currency  excels  the  original  in  con- 
venience. It  can  be  more  easily  counted,  transported,  manu- 
factured, is  not  so  easily  counterfeited,  occupies  less  space,  in 
short,  it  has  every  advantage  over  the  precious  metals  as  a 
medium  of  exchange. 

We  have  adverted  to  the  necessity  of  having  a  measure  or 
standard    of   value,   and    the    desirability    of   having    this    standard 

9 


114  THE  MONEY  OF  THE  FUTURE. 

comprise  the  money  of  a  country.  It  is  not  necessary,  though, 
that  the  standard  be  a  perfect  medium  of  exchange.  If  a  good 
substitute  can  be  invented  for  this  purpose,  the  standard  of  value 
may  be  a  very  inconvenient  medium  of  exchange,  if  it  were 
actually  used  as  such,  because  there  would  be  little  need  for 
transferring  it  in  bulk.  The  chief  requisite  is  to  select  the  best 
measure  of  value,  that  is,  a  thing  changing  least  in  value,  and 
which  can  be  so  represented  as  to  form  the  best  medium  of 
exchange;  in  other  words,  so  as  to  be  most  easily  counted,  car- 
ried, preserved  from  decay,  counterfeiting,  etc. 

Another  important  feature  in  the  medium  of  exchange  we  must 
not  overlook,  namely,  that  it  be  a  representative  of  actual  value; 
that  the  thing  represented  can  be  really  had  in  exchange  for  the 
representative.  In  creating  a  currency  or  money  for  a  country,  it 
does  not  follow  that  an  amount  of  money  must  always  be  kept 
on  hand  by  an  individual,  equal  to  the  representative  in  circula- 
tion, provided  the  issuer  have  ample  property  that  may  be  con-  « 
verted  into  money.  This  is  the  principle  upon  which  the  National 
banks  are  chartered.  Their  circulation  is  secured,  not  by  gold  and 
silver  in  their  vaults,  but  by  bonds  in  the  possession  of  the  Govern- 
ment. So  long  as  these  are  ample  security  for  the  payment  of 
the  circulation,  no  one  will  object  to  receiving  the  representatives 
of  this  property.  In  1857,  when  all  the  banks  in  New  York 
failed,  that  is,  were  unable  to  pay  their  notes  in  specie,  no  one 
objected  to  receiving  their  bills,  because  they  were  fully  secured 
by  State  bonds  held  by  the  Comptroller  of  the  State.  The  need- 
ful thing  about  the  currency  is  to  provide  for  its  security.  Now, 
since  the  representative  of  value  is  to  be  preferred  to  the  thing 
possessing  value,  as  a  medium  of  exchange,  provided  the  repre- 
sentative  be    fully  secured,  since    the    measure    of   value    is    rarely 


THE    MONEY    OF   THE    FUTURE.  II5 

ever  wanted  so  long  as  it  can  be  obtained,  it  makes  but  little 
difiference  what  sort  of  thing  the  security  be  as  long  as  its  value 
is  unchanging.  Hence,  if  gold  and  silver  were  displaced  by  iron, 
for  instance,  no  one  would   be   subjected  to  inconvenience  or  loss. 

Does  any  one  doubt  this  statement  ?  What  would  be  the  effect 
of  the  change  ?  A  bank  is  created  with  a  capital  of  1,000,000 
tons  of  iron.  It  deposits  bonds  which  are  deemed  equivalent  in 
value  to  the  iron  with  the  United  States  Treasurer,  and  receives  a 
circulation  for  nine-tenths  of  the  metal,  that  is,  bank  notes  promis- 
ing to  pay  all  who  take  them  iron  in  exchange.  The  notes  of  the 
bank  circulate  because  they  are  secured  by  the  bonds ;  it  is  of  no 
consequence  whether  the  bank  has  a  pound  of  iron  or  not,  for  no- 
body wants  any.  All  the  bill-holders  want  to  know  is  that  their 
bills  are  fully  secured;  and  so  long  as  this  is  the  case,  they  are 
content.  Of  course,  a  part  of  the  security  consists  in  having  the 
property  in  which  the  bills  are  finally  to  be  redeemed  of  as  nearly 
a  fixed  value  as  anything  can  be.  If,  therefore,  iron  has  as  fixed 
a  value  as  gold,  it  will  answer  just  as  well  as   a  basis    for  money. 

But  one  may  say,  iron  is  of  various  qualities.  Very  true,  but 
that  will  cause  no  difficulty.  The  bank  makes  its  notes  payable 
in  a  particular  quality  of  iron,  and  every  other  kind  of  iron  might 
be  graded  by  that.  For  example,  the  iron  coming  from  the  Iron 
Mountain  in  Missouri,  we  will  say  is  taken  as  a  standard. 
Rated  by  that,  we  will  say  that  the  iron  of  Michigan  is  worth  a 
quarter  less  or  a  quarter  more,  that  the  iron  of  New  York  is 
worth  half  as  much,  and  so  on.  Every  quality  of  iron  in  the  world 
could  be  easily  rated  according  to  the  standard,  and  every  bank 
could  make  its  notes  payable  in  standard  iron  or  other  kinds,  ac- 
cording to  their  value,  measured  by  the  iron  of  standard  quality. 
As  there    is  a    great    abundance    of  iron  in    the  world,    and    as    it 


Il6  THE  MONEY  OF  THE  FUTURE. 

must  always  be  used,  no  trouble  would  ever  arise  in  getting  it  to 
redeem  any  promises  for  which  iron  was  pledged  in  payment.  Iron 
has  value  for  the  same  reasons  as  gold.  The  two  are  in  the  same 
category.  If  gold  and  silver  become  worthless  so  that  they  could 
not  be  used  as  money,  there  would  be  no  difficulty  in  supplying 
their  place,  for  the  use  of  iron  as  a  measure  of  value  and  paper 
as  a  representative  for  iron  as  a  medium  of  exchange,  would  sub- 
ject us  to  no  inconvenience,  and  the  world  hardly  know  that  a 
change   had   been   made. 


X. 


THE     GOOD     AND     EVIL     OF     BANKING, 


Many  advantages  are  derived  from  banking.  These  may  be 
briefly  mentioned.  Banks  are  useful  places  for  the  deposit  of 
money.  They  also  collect  it  from  all  quarters  in  small  and  large 
sums  from  people  having  no  use  for  it,  and  loan  it  to  others 
who  have.  Another  benefit  is  that  they  transmit,  by  means  of 
drafts,  money  due  in  one  part  of  the  country  to  another,  with- 
out sending  gold  or  silver,  or  even  bank  notes  in  payment.  In 
Gilbart's  Practical  Treatise  on  Banking  a  number  of  advantages 
are  recounted  in  addition  to  those  mentioned,  some  of  which 
seern  quite  curious  in  these  latter  days  of  conducting  a  bank- 
ing business. 

Evil  also  is  blended  with  the  good.  Commercial  and  finan- 
cial panics,  those  disasters  which  are  dreaded  like  war  or  pes- 
tilence, are  one  of  the  evils  attending  the  banking  system. 
Before  the  existence  of  banks  these  calamities  were  unknown. 
"What,"  says  Prof.  Price,  "is  this  element,  this  distinguishing 
characteristic,  of  a  modern  crisis?"  .  .  .  The  essence  of  the 
disorder  is  a  phenomenon  of  banking.  Without  the  banks  there 
may  be   loss,  there    may  be    ruin,  but  there  cannot   be    that    pecu- 

*  Section  ii. 


Il8  THE    GOOD    AND    EVIL    OF    BANKING. 

liar  disorder  which  is  popularly  known  by  the  name  of  a  crisis 
or  a  panic.  It  is  the  commotion  within  the  banking  region 
which  generates  this  specific  malady."* 

The  panic  of  1873  in  the  United  States  is  an  exception. 
The  banks  did  not  originate  it,  nor  were  they  a  co-operating 
cause,  unless  the  aid  rendered  to  speculators  may  be  regarded  as 
aggravating  the  panic.  The  part  they  played  in  this  disaster  will 
be  considered  in  a  subsequent  chapter. 

As  it  is  necessary  to  dissect  to  some  extent  the  parts  of  a 
bank  if  we  would  know  how  panics  are  produced,  we  will  begin 
first  with  its  resources.  Our  attention  shall  be  confined  to  three 
items. 

First,  is  the  capital  of  the  bank  which  is  invested  largely  in 
bonds  and  other  securities.  At  present  most  of  our  banks  of  dis- 
count are  organized  under  the  National  banking  law,  which 
requires  the  investment  of  their  capital  stock  in  the  bonds  of  the 
National  Government. 

Secondly,  may  be  mentioned  the  loans  of  the  bank.  These  are 
made  payable  at  various  times,  but  generally  within  four  months, 
rarely  exceeding  six,  while  many  are  payable  in  sixty  days  or 
even  a  shorter  time.  The  funds  loaned  consist  of  bank  notes 
issued  by  the  lender,  and  deposits.  Many  people  suppose  that 
the  greater  portion  of  such  loans  are  the  notes  of  the  lender,  but 
this  is  a  mistake.  Thus,  the  return  of  the  Chemical  National 
Bank  of  New  York  City  to  the  National  Government  for  1869 
showed  that  its  loans  amounted  to  $3,956,415.06,  but  not  a  sin- 
gle bank  note  was  its  own.  Its  loans,  therefore,  were  made  from 
the    $5,352,803.94!    of    deposits    in    the    possession    of   the    bank. 

*  A^.  Brit.  Rez'.,  vol.  53,  p.   235. 

t  The  bank  had  $  12,685  of"  its  old  notes  as  a  State  bank  outstanding,  but  this  is  not  worthy 
of  mention  in  comparison  with  the  discounts. 


THE    GOOD    AND    EVIL    OF    BANKING.  IIQ 

Take  Sir  John  Lubbock's  bank.     He    has    given    us    the    analysis 
of  ^19,000,000  paid  into  it;  what  does  this  analysis  show? 

Checks  and  bills -Q  18,395,000 

Notes 487,000 

Coin 1 18,000 

Three  ])er  cent,  only  of  the  whole  amount  [jaid  in  consisted  of 
bank  notes,  one-half  of  one  per  cent,  was  coin,  while  the  remain- 
der, ninety-six  and  a  half  per  cent.,  was  checks  and  bills. 
Deposits,  consisting  very  largely  of  checks  upon  other  banks,  fur- 
nish the  staple  out  of  which  the  loans  of  banks  are  granted. 
Coin  and  bank  notes  are  only  small  change.  Again,  to  whom 
are  loans  made  ?  Every  bank  has  a  number  of  persons,  often  a 
very  large  number,  who  usually  are  depositors  as  well,  as  borrow- 
ers. They  need  loans  to  meet  payments  which  are  constantly 
falling  due  in  business,  and  which  must  be  discharged  else  the 
credit  of  the  customer — merchant,  contractor,  whoever  he  may 
be — is  destroyed.  He  relies  upon  the  bank  for  assistance.  The 
amount  of  assistance  given  is  dependent,  to  a  large  extent,  upon 
the  amount  of  deposits  the  borrower  may  have  there,  and  his 
ability  to  pay.  In  this  way  the  custom  is  created  by  which  the 
merchant  confidently  looks  to  his  bank  for  pecuniary  help  to 
carry  on  his  business,  and  likewise  the  bank  looks  to  the  mer- 
chant for  the  receipt  and  employment  of  its  funds.  This  is  a 
mutual  benefit,  for  the  merchant  could  not  conduct  his  business 
so  successfully,  if  at  all,  without  the  means  thus  obtained;  and 
the  bank  would  lose  all  profit  on  its  notes  and  deposits  if  they 
were  not  employed. 

Thirdly,  the  reserve.  Under  the  State-bank  system,  the  banks 
were  required  to  hold  a  certain  amount  of  specie  with  which  the 
notes  issued  by  them  could  be  redeemed.     Those  transacting  busi- 


I20  THE    GOOD    AND    EVIL    OF    BANKING. 

ness  under  the  National  banking  law  are  required  to  hold  the 
legal-tender  notes  of  the  United  States  in  place  of  specie.  The 
country  banks  must  have  a  reserve  of  fifteen  per  cent,  to  redeem 
their  circulation;  and  the  banks  in  the  larger  cities  twenty-five 
per  cent. 

Let  us  now  cross  over  to  the  other  side  of  the  bank — its  lia- 
bilities. These  consist  mainly  of  deposits,  its  own  bank  notes, 
and  bank  balances. 

First,  deposits  are  the  various  sums  held  by  the  bank  belonging 
to  its  depositors.  They  are  properly  called  inscribed  credits  ;  and 
are  payable  on  demand.  An  inventory  of  them  might  show 
something  like  the  following : 

a.  Checks  drawn  by  the  depositor,  or  others,  upon  other  banks. 

b.  Notes  of  that  bank,  or  of  other  banks. 

c.  Notes  of  individuals,  or  bills  of  exchange  running  to  maturity 
which  are  deposited  for  collection,  the  amount  of  which  is  credited 
to  the  depositor  when  collected.  Such  notes  and  bills  of  exchange 
owe  their  existence  largely  to  the  sales  of  merchandise.  "  The 
sellers  have  received  in  payment,  not  money,  but  orders  to  re- 
ceive money ;  and  these  orders  they  lodge  with  their  bankers  for 
collection." 

d.  Notes  of  the  depositor,  or  of  others  belonging  to  him,  which 
are  discounted  at  the  bank,  and  the  amount  thereof  is  passed  to 
his  credit.     This  is  the  origin  of  the  greater  part  of  all  deposits.* 

Though  deposits  arise  in  the  several  ways  above  mentioned,  yet 
they  are  held  by  the  banks  upon  very  different  conditions,  either 
express  or  implied,  which  may  be  understood  from  the  following 
classification  : 

*  This    analysis    of  deposits    is    but    little  more  than  a  re-statement   from    Amasa  Walker's 
Science  of  Wealth.     See  p.   148. 


THE    GOOD    AND    EVIL    OF    BANKING.  121 

a.  '^  Permanent  or  compulsory  deposits  made  by  business  men 
wishing  for  bank  accommodations,  in  order  to  secure  larger 
loans." 

/>.  "  Fiduciary  or  trust  deposits,  made  wholly  for  temporary 
safe  keeping,  by  executors,  guardians,  treasurers  of  corporations, 
etc.,  who  are  receiving  funds  to  be  paid  out,  or  invested  at  a 
future  period." 

c.  "  Active  deposits,  made  by  business  men,  to  be  withdrawn  to 
meet  current  payments."* 

Now,  all  of  these  deposits  may  be  demanded  at  any  moment. 
And  herein  consists  the  peculiar  difficulty  of  banking.  The  loans 
are  made  for  a  fixed  time,  and  the  borrowers  are  paid  either  in 
the  notes  of  the  discounting  bank,  or  of  other  banks,  while  the 
persons  into  whose  hands  these  very  funds  may  fall,  can  take 
them  immediately  to  the  banks  issuing  them,  and  demand  instant 
])ayment  thereof,  either  in  specie  or  legal  tenders,  according  to 
the  tenor  of  the  notes.  In  other  words,  the  loans  of  banks  are 
made  payable  in  a  given  time,  although  the  deposits  and  bank 
notes  which  furnish  the  basis  for  making  loans  are  payable  on 
call.  How,  then,  it  may  be  asked,  can  a  bank  ever  make  loans 
in  safety  ?  Simply  because  people  do  not  demand  their  deposits 
as  soon  as  made  ;  t  and  because  they  do  not  demand  specie  or 
legal  tenders  in  payment  of  bank  notes  as  soon  as  they  are  re- 
ceived. It  is  true  that  depositors  are  constantly  using  a  portion 
of  their  deposits ;  nevertheless,  a  large  portion  is  left  with  the 
bank,  which  would  remain  unemployed  unless  loaned.  That  por- 
tion, which  depositors  thus  suffer  to  remain  for  a  longer  or  shorter 

*  Walkkr,  p.   149. 

t  Deposits  circulate  from  owner  to  owner  on  an  average  once  in  three  and  a-half  days,  or 
100  times  in  a  year."  George  Opdyke,  "  New  View  of  the  Currency  Question."  Bank. 
Mag.,  vol.  13,  p.  423- 


122  THE    GOOD    AND    EVIL    OF    BANKING. 

time,  is  generally  known.  Besides,  as  depositors  are,  in  many 
cases,  borrowers,  it  is  customary  for  them  to  have  more  or  less 
upon  deposit,  in  order  to  get  necessary  accommodations.  "  The 
permanent  or  compulsory  deposits  are  not  used  at  all  by  those 
who  make  them.  They  are  made  with  the  tacit  understanding 
that  they  are  to  remain  in  the  bank,  and  not  to  be  drawn  upon. 
They  are  made  to  secure  favors  from  the  bank,  and  in  order  to 
show  a  '  good  account.'  No  bank,  perhaps,  compels  its  customers 
by  any  law  or  rule  to  do  this ;  but  custom  in  such  case  is  as  im- 
perative as  law.  Banks  are  conducted  wholly  with  reference  to 
profit,  and  the  most  profitable  accounts  will  secure  the  most 
liberal  discounts.  These  deposits  constitute  a  permanent  loan  to 
the  banks,  without  interest ;  and  the  banks  can  loan  the  same  to 
their  customers  on  interest."*  The  custom  determining  the  por- 
tion of  discounts  that  shall  be  left  with  banks  is  variable.  A  cor- 
respondent, in  1857,  wrote  that  the  custom  "very  extensively" 
prevailed  in  the  New  York  banks  "  of  discounting  large  amounts 
of  paper,  with  the  express  understanding  or  agreement  that  one- 
quarter  or  one-half  shall  lay  in  bank  till  another  discount  is  ob- 
tained upon  the  same  condition."t  We  may  remark,  by  the  way, 
that  this  custom  looks  very  much  like  another  mode  of  taking 
usury. 

It  is  upon  such  deposits,  and  their  own  notes,  that  banks  are 
able  to  make  loans  to  individuals.  For  it  is  evident  that  if  the 
banks  could  not  ascertain,  with  any  certainty,  the  amount  of  de- 
posits that  would  probably  be  withdrawn  in  a  given  time,  they 
could  not  loan  any  portion  thereof.  So,  if  their  own  notes  were 
constantly  returned  for  payment  in  specie,  legal  tenders,  or  what- 
ever the    law  requires  must   be   paid    for    them,  the   banks   would 

*  Walker,  p    149. 
Bank.  Mag.,  vol.   12,  p.  470. 


THE    GOOD    AND    EVIL    OF    DANKING.  1 23 

not  dare  to  put  any  in  circulation ;  indeed,  it  would  be  folly 
for  them  to  make  the  attempt.  But  as  every  dollar  of  deposits 
may  be  instantly  withdrawn,  as  there  is  no  law  or  imperative 
custom  to  prevent  this,  and  as  there  are  occasions  when  this  has 
been,  or  attempted  to  be,  done,  and  which  may  arise  again,  con- 
sequently, banks  are  always  occupying  an  exposed  situation  which 
the  wisest  foresight  sometimes  fails  to  protect.  Moreover,  when 
those  occasions  arise  in  which  depositors  generally  demand  their 
loans,  the  banks  are  least  able  to  repay. 

Secondly,  another  form  of  bank  indebtedness  consists  of  their 
own  notes.  Under  the  National  banking  act,  the  quantity  that  may 
be  issued  by  any  bank  does  not  exceed  ninety  per  cent,  of  its 
circulation.  They  are  secured  by  United  States  bonds  deposited 
with  the  Comptroller.  As  these  bank  notes  are  always  redeemable 
in  the  circulation  of  the  general  Government,  National  banks  are 
required  to  keep  a  certain  quantity  of  it  on  hand  in  order  to 
redeem  their  own  notes  when  presented. 

Lastly,  we  may  mention  bank  balances.  This  form  of  indebted- 
ness is  worthy  of  notice,  for  we  shall  see  hereafter  that  they  have 
played  a  most  important  part  in  aggravating  the  evils  of  financial 
panics.  They  are  deposits  due  from  one  bank  to  another.  In 
August,  1857,  the  banks  of  the  city  of  New  York  owed  other 
banks  nearly  one  hundred  millions  of  dollars,*  a  part  of  which 
sum  had  been  left  with  them  to  meet  various  liabilities,  although 
the  greater  portion  had  been  tempted  thither  by  the  payment  of 
four  to  six  per  cent,  interest. 

Thus  much  is  all  that  need  l)e  said  upon  the  anatomy  of  a 
bank,  in  order  to  understand  how  it  originates  a  financial  crisis. 
To  one  familiar  with  the  business  of  banking  all  that  we  have 
said  was  known  before  ;•  to  others  it  was  indispensable. 

*  Bank.  Mag.,  vol.  12,  p.  334. 


124  THE    GOOD    AND    EVIL    OF    BANKING. 

How,  then,  does  a  bank  bring  about  so  dire  a  calamity  as  a 
financial  crisis  ?  It  will  be  found,  upon  examination,  that  the 
banks  have  always  produced  them  by  withholding  their  customary 
loans ;  or,  in  other  words,  by  withdrawing  their  confidence  in  the 
ability  of  their  customers  to  pay.  Thus,  in  the  English  panic  of 
1797,  the  Bank  of  England  reduced  its  circulation — which,  of 
course,  was  done  by  refusing  to  discount — from  ^  16,017,510,  on 
the  28th  of  February,  1795,  to  ^8,640,250,  on  the  25th  of  Feb- 
ruary, 1797.  Discounts  were  reduced  nearly  ^2,000,000  between 
the  2ist  of  January  and  the  25th  of  February  of  the  latter  year — 
the  year  the  panic  occurred.*  "  But  even  this  gave  no  true  idea 
of  the  curtailment  of  mercantile  accommodation,  for  the  private 
bankers  were  obliged,  for  their  own  security,  to  follow  the  exam- 
ple of  the  bank.  In  order  to  meet  their  payments  persons  were 
obhged  to  sell  their  stock  of  all  descriptions  at  an  enormous 
sacrifice."  On  the  25th  of  February  it  was  felt  that  the  fatal  hour 
had  come.  The  next  day  the  bank  began  to  increase  its  dis- 
counts, and  the  relief  "produced  at  the  instant"  was  very  great. 
"  After  taking  all  the  circumstances  into  consideration,"  says 
Macleod,  "  we  cannot  fail  to  acquiesce  in  the  opinion  expressed 
by  so  many  eminent  bankers  and  merchants  at  the  time,  by  the 
subsequent  avowal  that  experience  had  led  many  of  the  directors 
to  repent  of  the  policy  they  then  pursued,  and  by  the  decided 
opinion  of  the  Bullion  Committee,  that  the  policy  pursued  by  the 
bank  in  this  momentous  crisis  was  erroneous,  and  that  the  severe 
restrictions  they  attempted  to  place  upon  commerce,  very  greatly 
contributed  to  bring  on  the  calamity  by  which  they  were  subse- 
quently overwhelmed."  t 

*  The  exact  reduction  was  ^1,910,580.     The  first  EngUsh    panic   occurred   in  1793,  and  was 
produced  by  a  similar  cause, 
t  Macleod,   Theory  and  Pract.  of  Banking,  vol.   i,  p.  401. 


THE    GOOD    AND    EVIL    OF    BANKINCJ.  1 25 

Again,  in  the  English  crisis  of  1862,  for    six  months  previous  to 
the  event,  the    Bank  of    England    had    been  "  violently  contract- 
ing its  issues."     This   policy  was    continued  till  the  night  of  Tues- 
day, the    13th    of   December,    when    the    crisis  was    at    its    height. 
"  During  the  previous  forty-eight  hours,"  said  Mr.  Huskisson,  the 
president  of  the  bank,  "  even  the  best  Government  securities  could 
not,  to    any    extent,  be    converted    into    money;    other    stock,    of 
course,    was    still    more    unsalable;    and    Mr.    Baring    said    that 
persons  would    not    part  with    their   money  on    any  terms,  nor    for 
any  security.     The   prevalent   distrust,  by  invalidating  the  ordinary 
forms    of   commercial    credit,    had    rendered    a    greater    supply    of 
money  absolutely  indispensable ;    yet  the    bank   had    been   steadily 
doing    its    best    to    render   money    much    scarcer    than    usual.     At 
length    it    found    that    such    measures    were    undermining    its    own 
position,    and    that,    if    continued    for    another    day,    they    would 
involve    the    bank,    as    well    as  the    country,    in    a   common    ruin. 
Accordingly,  on  Wednesday  the    14th,    the    bank    totally    changed 
its  policy,    and    discounted   with    the    utmost    profuseness.     In    the 
words    of   the    deputy    governor,  '  they  had    (at    length !)    taken    a 
firm    and    deliberate   resolution  to   make    common    cause  with    the 
country.'      Instead    of   refusing    to    discount,    they  forced  out   their 
money  in    loans  in    all    directions.     '  We   lent   it   by  every  possible 
means,'  said  Mr.  Kearman,  '  and  in  modes  we  had  never  adopted 
before;     ...    we  were  not  on  some  occasions  over-nice;  seeing 
the    dreadful    state    in  which    the  public  were,  we    rendered    every 
assistance  in    our   power.'  "     "  This    policy,"   says    Macleod,  "  was 
crowned  with    the    most    complete    success;    the  panic   was    stayed 
almost  immediately.     The  mere  sight  of  the  bank  notes  was  enough. 
'  At    Norwich,'  said   Mr.  Richards,  '  when    the    Gurneys   showed 
upon  their    counter   so  many  feet   of  bank    notes  at  such  a  thick- 


126  ^  THE    GOOD    AND    EVIL   OF    BANKING. 

ness,  it  stopped  the  run  in  that  part  of  the  country.'  By  the  24th 
of  December  the  panic  was  completely  allayed  all  over  the  coun- 
try, and  by  the  end  of  the  month  the  credit  of  the  banking  world 
was  completely  restored."* 

The  next  great  crisis  was  in  1847.  The  extreme  pressure 
began  on'  the  23d  of  September,  when  the  Bank  of  England 
adopted  more  stringent  measures  to  lessen  discounts.  On  the 
15th  of  October  it  refused  to  discount  upon  either  Government 
stock  or  Exchequer  bills  as  securities,  consequently  other  banks 
hastened  to  sell  their  securities,  and  to  hoard  the  notes  received 
in  payment.  When  the  Bank  of  England  failed  to  advance 
on  good  securities,  they  were  sold  for  what  they  would  fetch ; 
so  that  the  only  effect  of  this  narrow  and  restrictive  policy  was 
to  create  hoarding  and  panic.  Things  grew  worse  daily.  Several 
large  banks  in  Liverpool,  Manchester,  Newcastle,  and  other  towns, 
stopped  payment.  The  drain  on  the  Bank  of  England  became 
greater  than  ever.  As  the  whole  of  the  commercial  world  knew 
that  the  resources  of  its  banking  department  were  being  rapidly 
exhausted,  a  complete  panic  seized  them.  A  complete  cessation 
of  private  discounts  took  place.  No  one  would  part  with  the 
money  or  notes  in  his  possession.  On  the  23d  of  October  the 
terrible  game  was  played  out.  The  Government,  with  the  view 
"  to  restore  confidence  to  the  mercantile  community,  .  .  recom- 
mended the  bank  directors  to  enlarge  the  amount  of  their  discounts 
and  advances.'''  What  followed  ?  The  Government  letter  "  was 
made  public  about  one  o'clock  on  Monday,  the  25th,  and  no 
sooner  was  this  done  than  the  panic  vanished  like  a  dream.  Mr. 
Gurney  stated  that  it  produced  its  effects  in  ten  minutes.  No 
sooner  was  it  known  that  notes  fnight  be   had   than   the   want  for 

*  Patterson,  Economy  of  Capital,  p.   loi ;   Macleod's  Theo.  and  Pract.  of  Banking. 


THE    GOOD    AND    EVIL   OF    BANKING.  1 27 

them  ceased."  In  the  speech  of  the  Chancellor  of  the  Exchequer 
— Sir  C.  Wood — on  this  subject,  he  said :  "  Parties  of  every 
description  made  application  to  us,  with  the  observation,  '  We 
do  not  want  notes,  but  give  us  confidence.'  They  said,  '  We 
have  notes  enough,  but  we  have  not  confidence  to  use  them ;  say 
you  will  stand  by  us,  and  we  shall  have  all  that  we  want;  do 
anything,  in  short,  that  will  give  us  confidence.  If  we  think  that 
we  can  get  bank  notes  we  shall  not  want  them.'  Parties  said  to 
me,  'Let  us  have  notes;  charge  ten,  twelve  per  cent,  for  them; 
we  don't  care  what  the  rate  of  interest  is.  We  don't  mean, 
indeed,  to  take  the  notes,  because  we  shall  not  want  them;  only 
tell  us  that  7C'e  can  get  them,  and  this  will  at  once  restore  confi- 
dence.'" Hence,  Patterson  says  "that  the  restrictive  policy  of 
the  Bank  of  England  was  the  chief  cause  of  this  collapse  of 
credit,  aggravating  a  season  of  commercial  difficulty  into  one  of 
most  destructive  panic."*  Had  the  bank  continued  its  customary 
discounts  this  panic  would  not  have  occurred. 

Let  us  turn  to  the  financial  history  of  our  own  country  for  evi- 
dence of  the  truth  that  the  panics  originating  here  were  occa- 
sioned by  the  refusal  of  banks  to  grant  the  usual  advances  to 
their  customers. 

The  financial  crisis  of  1817  continued  two  years.  In  July  of 
the  first-named  year  the  directors  of  the  United  States  Bank 
determined  to  contract  the  loans  of  the  institution.  The  bank  in 
Philadelphia  was  ordered  to  reduce  its  discounts  to  the  amount  of 
$2,000,000,  the  same  reduction  to  be  made  at  the  branch  in  Bal- 
timore ;  $  700,000  at  the  branch  in  Richmond,  and  $  500,000  at 
the  one  in  Norfolk.  All  of  these  reduction^  were  required  before 
the  first  of   November.     In    the    short    space  of  three  months  and 

*  Patterson,  p.  io6. 


128  THE  GOOD  AND  EVIL  OF  BANKING. 

ten  days  discounts  had  been  reduced  four  millions  and  a  half. 
This  reduction  had  a  very  disastrous  effect  on  the  merchants,  and 
through  them  on  the  rest  of  the  community.  Yet  a  still  further 
reduction  of  discounts  was  ordered,  till  "  the  people  were 
ruined ;"  then  it  was  stopped.  "  For  a  time,"  says  Gouge,* 
"  the  question  in  Market  Street,  Philadelphia,  was,  every  morning, 
not  who  had  broken  the  previous  day,  but  who  yet  stood.  In 
many  parts  of  the  country  the  distress  was  as  great  as  it  was  in 
Philadelphia,  and  in  others  it  was  still  more  deplorable."  "  We 
heard,"  adds  Mr.  NiLES,t  "  of  a  severe  pressure  on  men  in  busi- 
ness, a  general  stagnation  of  trade,  a  large  reduction  in  the  price 
of  staple  articles.  Real  property  is  rapidly  depreciating  in  its 
nominal  value,  and  its  rents  or  profits  are  exceedingly  diminish- 
ing. Many  highly  respectable  traders  have  become  bankrupts, 
and  it  is  agreed  that  many  others  must  go  as  the  banks  are 
refusing  their  customary  accommodations ;  confidence  among  mer- 
chants is  shaken,  and  three  per  cent,  per  month  is  offered  for  the 
discount  of  promissory  notes,  which,  a  little  while  ago,  were  con- 
sidered as  good  as  '  old  gold,'  and  whose  makers  have  not  since 
suffered  any  losses  to  render  their  notes  less  valuable  than  here- 
tofore."! 

A  committee  appointed  by  the  Legislature  of  the  State  of 
Pennsylvania  to  inquire  into  the  causes  of  the  panic  got  at  the 
truth.  They  reported  that  the  reduction  of  discounts  made  by 
the  United  States  Bank,  together  with  the  reduction  of  dis- 
counts by  the  State  banks,  had  brought  about  the  commercial 
distress  recently  experienced. 

Passing  over  the  commercial  crisis  of  1837,  which  was  caused 
by  the  United  States  Bank  in  the  same  way  as  the  former  one, 

*  Gouge.  Short  Hist,  of  Paper  Money,  p    32.     t  Id.     \  Quoted  by  Gouge,  p.  32. 


THE    GOOD    AND    EVIL    OF    BANKING.  T29 

we  will  take  up  the  crisis  of  1857.  It  was  opened  by  the  failure 
of  the  Ohio  Life  and  Trust  Company  for  $  2,311,268.  Although 
many  banks  and  individuals  suffered  by  this  loss,  ordinarily,  it 
would  have  extended  no  further.  But  the  failure  of  a  concern  of 
such  high  commercial  standing  aroused  the  suspicion  of  the  banks 
in  respect  to  the  insolvency  of  other  corporations  and  houses. 
Their  suspicion  was  confirmed  soon  after  by  the  failure  of  the 
New  York  and  Erie,  and  Michigan  Southern,  railroad  companies, 
and  other  corporations  whose  stock  and  bonds  had  been  con- 
sidered solid  investments.  To  aggravate  the  evil  arising  from 
these  failures,  a  powerful  combination  of  speculators  in  New  York 
city  devoted  themselves  to  the  unholy  task  of  bringing  certain 
large  undertakings  to  ruin,  and  of  undermining  the  National  credit. 
Said  a  New  York  correspondent  of  an  English  newspaper :  "  A 
large  body  of  active  houses  are  known  to  be  associated  for  the 
purpose ;  to  influence  the  press  to  work  out  their  views,  and  are 
alleged  not  merely  to  operate  with  a  joint  cajjital,  but  to  hold 
regular  meetings,  and  permanently  retain  legal  advisers,  whose 
chief  vocation,  it  may  be  assumed,  is  to  discover  points  that  may 
enable  the  validity  of  each  kind  of  security  to  be  called  in  (|ues- 
tion,  and  thus  to  create  universal  distrust."* 

The  banks  began  to  quake.  They  thought  only  of  themselves. 
By  refusing  further  discounts  they  stopped  the  issue  of  their  own 
notes,  and,  as  loans  matured,  they  received  their  own  circulation 
back  again,  or  that  of  other  banks,  for  which  they  could  get 
specie,  or  their  own  notes  by  way  of  exchange  through  the 
Clearing- House.  The  loans  of  the  New  York  city  banks  were 
contracted  $  25,000,000  between  the  ist  of  August  and  the  24th 
of  October. 

'  London  Times.  Sept.   lo,  1857.     See  Bank.  Mag.,  vol.   12,  p.  33.). 
10 


130  THE    GOOD    AND    EVIL    OF    BANKING. 

The  result  might  have  been  easily  foreseen.  The  borrowers 
were  dependent  upon  the  banks  for  advances  to  meet  many  of 
their  ordinary  payments.  They  had  been  accustomed  to  rely 
upon  the  banks  for  funds;  their  business  had  been  conducted 
upon  the  supposition  that  a  certain  amount  of  assistance  from  this 
source  would,  if  needed,  always  be  forthcoming.  Now  they  sud- 
denly found  themselves  cut  off  from  the  usual  advances.  Of 
course,  those  who  had  not  the  money,  or  could  not  get  the 
means  necessary  to  carry  on  their  business,   were  obliged  to  fail. 

WHien  the  evil  consequences  of  a  sudden  contraction  of  loans  is 
so  apparent,  why  do  banks  pursue  such  an  untoward  course  ? 
For  one  of  four  reasons:  First,  to  reduce  their  own  circulation, 
so  that  when  the  crash  comes  they  may  be  able  to  redeem  the 
balance  without  difficulty.  This  may  seem,  at  first  sight,  to  be  a 
di(  tate  of  prudence,  but  from  the  peculiar  relation  in  which  banks 
stand  to  their  customers,  it  has  always  led  to  tlie  uiost  disastrous 
<oiise(|uences,  first  to  their  customers  and  afterwards  t(j  themselves. 

Secondly,  another  reason  leading  banks  to  decline  discounts  is 
distrust  in  the  ability  of  their  customers  to  pay.  We  have  already 
seen  that  the  p.inic  of  1857  began  with  the  failure  of  several 
prominent  concerns  of  undoubted  credit.  The  feilure  of  these  led 
banks  to  distrust  others,  and  soon  a  general  contraction  of  loans 
set  in.  One  liank  was  frightened  l)y  the  action  of  another,  till  the 
refusal  to  discount  among  them  became  general.  Individuals  fol- 
lowed in  the  wake  ot  the  banks,  so  that  it  was  almost  impossible 
to  obtain   loans   from   any   source. 

Thinlly,  banks  sometimes  refuse  to  discount  from  lack  of  funds. 
We  have  alread\  seen  how  largely  de[)endent  they  are  upon  their 
depositors  for  loanable  capital.  This  supjjly  may  become  short  at 
any  time  from  three  causes :     In  the  first   place,  loans  due  a  bank 


THE    GOOD    AND    EVIL    OF    BANKING.  131 

may  not  be  paid  at  maturity,  in  which  case  it  does  not  have 
funds  to  make  new  loans.  This  may  happen  by  imprudent  loan- 
ing in  the  first  instance  on  the  part  of  the  bank,  or  the  embarrass- 
ment or  failure  of  a  customer  from  circumstances  that  could  not 
be  easily  foreseen.  In  either  case  the  money  due  the  bank  is  not 
forthcoming,  so  that  it  cannot  be  had  to  loan  again.  In  the 
second  place,  the  supply  may  become  short  from  a  sudden  falling 
oft'  in  the  amount  of  deposits.  This  may  happen  through  the 
failure  of  the  customers  of  the  depositor,  or  diminution  in  the  sale 
of  goods,  "  such  as  occurs  when  trade  is  bad,  and  stocks  of 
merchandise  accumulate  for  want  of  purchasers,  or  when  the 
harvest  is  deficient,  or  when  cotton  is  scarae  or  dear,  and  the 
customers  of  cotton  goods  reduce  then-  consumption."*  In  the 
third  place,  at  such  times  de])ositors  caU  more  generally  for  their 
deposits. 

Fourthly,  it  may  happen  "from  a  diminution  of  pn^fits  leaving 
a  small  margin  for  savings,  and  rcducinjj;  the  ([uantity  of  unin- 
vested savings,  which  form  a  large  portion  of  the  means  at  the 
disposal  of  bankers."!  In  either  case,  the  deposits  fall  away  at 
the  very  time  when  the  depositor  generally  seeks  for  extended 
accommodations. 

The  Ijanks,  however,  before  completely  extinguishing  the  lives 
of  their  customers,  lose  their  own  also.  When  this  is  done,  the 
panic  is  complete.  Having  now  shown  how  banks  begin  a  panic, 
let  us  follow   it  u])  to  its  ccnsumination. 

In  attempting  to  take  the  lives  of  their  customers,  it  is  strange 
that  banks  have  not  seen  that  the  former  would  defend  them- 
selves, and,  if  need  be,  destroy  their  foes  in  trying  to  make  a 
successful    defense.     It    is    stranger    still    that    banks    lia\e  not  seen 

*  Price,  N.  Brit.  Rev.,  vol.  53,  p.  241.     I  Ui- 


132  THE  GOOD  AND  EVIL  OF  BANKING. 

that  their  destruction  was  inevitable  if  customers  were   inclined    to 
destroy  these  institutions. 

How  ?  By  calling  for  deposits  and  specie.  Both  bank  notes 
and  deposits  must  be  paid  on  call  or  the  bank  must  fail.  From 
this  there  is  no  escape. 

Generally,  banks  fail  from  their  inability  to  pay  depositors- 
This,  we  think,  is  true  in  respect  to  English  panics,  without 
exception.  It  is  quite  as  true  in  respect  to  the  panics  which  have 
occurred  here.  As  this  hint  has  not  been  clearly  understood 
among  us,  it  is  worthy  of  considerable  notice.  Very  many  have 
supposed  that  the  banks  have  failed  usually  because  they  were  not 
able  to  redeem  their  notes.  Let  us  see  what  the  truth  is.  It  is 
clearly  evident  that  there  never  is,  nor  can  be,  a  run  for  gold 
apart  from  a  run  for  deposits.  "  If  the  holders  of  notes,"  says 
Patterson,  "who  probably  have  not  more  than  ^5  or  ^10  on 
hand,  lose  faith  in  the  bank,  the  depositors  will  still  more  surely 
take  alarm.  If  a  bank  cannot  pay  its  notes,  how  is  it  to  pay  its 
deposits  ?  Hence,  the  common  idea  which  attributes  such  panics 
to  a  real  or  supposed  unsoundness  of  the  note  issues,  is  quite  a 
mistake.  There  would  be  panics  and  runs  on  the  bank,  though 
they  did  not  issue  a  single  note.  The  demand  for  gold  in 
exchange  for  notes  is  merely  an  accompaniment  (and  a  compar- 
atively trifling  one)  of  the  run  for  deposits.  And  such  a  run,  if 
not  jjromptly  checked,  must  prove  fatal ;  for  no  bank  can  pay  up 
its  deposits  at  once,  whether  in    gold  or  notes."  * 

Take  the  panic  of  1857.  The  merchants  did  not  want  specie, 
but  loans.  I'he  banks  refused  to  grant  them.  A  large  portion  of 
the  (le])Osits  they  held  were  left  to  secure  advances.  When  these 
were    denied,    did    the    banks    suppose    that    such     deposits    would 

■    Econ.  of  Capital,   p.  95. 


THE    GOOD    AND    EVIL    OF    BANKING. 


^33 


remain?     Why  should  they  be   kept  in   the  bank  when  all  reasons 
for  keeping  them  there  had  vanished?     Besides,  they   were  needed 
to  make  payments    in   order  to  continue  the  struggle  a  little  longer 
with  the  contending  elements.      Perhaps,  too,  a  spirit  of  retaliation 
(juickened  the  determination  of  some    depositors  to  withdraw  their 
dei^osits.      The   language   used   by  the    New  York   city  merchants 
to  their  bankers  was  this:     "  Tf  you  think  yourselves  justified,  in  a 
time  of  crisis,  in    bringing    down  scores  of   good    firms,  as  solvent 
and  reputable  as    yourselves,  the    public    are    still    more  jusdfied  in 
checkmating  ivw,  by  requesting  you  to  fulfill  your  promises  to  pay. 
Since    it    is    on    the    plea   of   preserving    the    convertibility    o(    the 
note  (which  luc  had  no  thoi/i^hf  of  (jitcsfioni/i!^)^  that    you   produced 
this  wide-spread  suffering,  the  outraged    community  may  well   turn 
round  upon  you  and  say,  '  Very  well,  gentlemen,  let  i/s  see  if  you 
can  do  if.' "     The    banks,  of   course,  coit/d   not  do    if,  and    so    they 
were  obliged  to  close  their  doors.     At  the  same  time  die  Western 
banks  ciilled    fijr    their    hundred   null  ions  of  bank    balances.      It    is 
true  that    in    many   places   specie    was   demanded,  but    it    was    not 
distrust  in  the  New  York  city  banks    to    redeem  their  notes  which 
led  their   holders    to  demand    payment  of  them   in   specie.     All  of 
the  notes  were  am|ily  secured  by  the  pledge  of  sound  bonds  held 
by  the  State  Comptroller,  besides   the  specie  ownecl  by  the  banks. 
And,  in    feet,  every  note  was    paid.       Not    a    bank    in    New  York 
city  failed  in    1857   having  insufficient  funds  to  ])ay  every  dollar  of 
its  circulation.     Their  notes  circulated  without  loss  of  value  during 
all  the    time    that    specie    i)ayments  were    suspended.      "Even    the 
worst  crisis  which   ever   befell    the    Bank   ov    England — the  crisis 
of  1825 — so  far   from    discrediting   its  notes,  was   actually    relieved 
by  the    accidental    discovery    of  a    million    of   unluinu    /,"  1    notes. 
Conmierce   was  probably  never   more    severely   tried  than  in    1S47  ; 


134  THE    GOOD    AND    EVIL    OF    BANKING. 

l)ut  the  merchants,  in  their  dread  of  the  suspension  of  dis- 
counts, took  to  hoarding,  not  gold,  but  notes.*  It  was  not  con- 
vertibihty  of  the  bank  note,  as  has  been  so  often  and  so 
groundlessly  asserted  by  Lord  Overstone  and  his  compeers,  that 
was  felt  to  be  endangered.  Men  feared  that  bills  might  cease  to 
be  discounted,  or  that  the  bank  might  be  unable  at  the  moment 
to  pay  cheques  drawn  against  deposits."!  True,  some  banks  in 
1857  were  unable  to  pay  their  bill-holders  in  specie  or  anything 
else.  A  run  on  such  banks  would  have  taken  place  whenever 
their  true  condition  was  known  ;  nevertheless,  the  run  would  have 
been  as  great  among  depositors,  indeed  greater,  than  among  bill- 
holders  for,  if  either  (lass  were  secured,  it  was  the  latter. 

We  have  thus  dwelt  upon  this  point,  because,  if  a  panic  breaks 
out  during  the  existence  of  the  National  bank  system,  it  will  be 
occasioned  by  a  run,  not  for  legal  tenders  in  exchange  for  bank 
notes,  Init  by  a  run  for  deposits.  Assuming  that  the  National 
bonds  are  a  sound  investment,  and  that  they  will  be  paid,  no  one 
will  fear  the  non-payment  of  the  circulation  of  the  National  banks, 
for  it  is  amply  secured.  Let  the  banks  fail  ever  so  generally, 
their  circulation  will  not  aggravate  a  financial  panic,  for  no  one 
will  lose  any  portion  of  it.  If,  therefore,  the  banks  fail,  the 
reason  will  simply  be  their  inability  to  pay  deposits  when 
demanded. 

We  have  now  gone  over  the  ground  in  respect  to  the  cause  of 
commercial  and  financial  panics.  We  have  seen  that  it  is  begun 
by  the  banks  which,  in  destroying  their  customers,  are  in  turn 
destroyed  by  them. 

What  are  the  remedies  ?     The   first   remedy  is  that   banks   must 

*  This  is  what  merchants  and  others  did  in  the  panic  of  1873. 
t  N.  Brit.  Rev.,  vol.  30,  p.   183. 


THE    GOOD    AND    EVIL    OF    BANKING.  I35 

exercise  care  in  making  loans.  How  often  have  banks,  impru- 
dently, nay,  even  recklessly,  loaned  their  resources?  These  may 
employed  in  the  pnxhiction  of  additional  wealth,  or,  they  may  be 
employed  unproductively.  Whether  they  are  employetl  in  the  one 
way  or  the  other  is  determined  principally  by  the  banks.  They 
are  the  power  dis|)osing  of  the  uninvested  savings  of  the  nation, 
and  deciding,  inaiidy,  to  wliat  ])urpose  the  surplus  of  corn  and 
(•attic,  (he  |)r()fUs  of  accumulated  clothing  and  goods,  the  com- 
moduies  ;ind  machinery  of  all  kinds  am;issed,  which  constitute  the 
national  savings,  shall  l')e  applied.  If  the  resources  of  banks  are 
em])loyed  uni)rodu(  lively,  they  UKiy  hnd  it  diffi<  ult,  as  they  often 
<lo,  in  getting  their  funds.  And  if  sue  h  loans  are  not  discharged, 
according  to  agreemenl,  die  banks  ;ire  deprived  of  part  of  dieir 
resources  out  of  whic  h  future  loans  are  granted  and  deposits  are 
l^aid.  "  Kverything,"  says  I'rof  Pkick,  "depends  upon  the  sa- 
gacity and  prudence  banks  bring  to  bear  on  the  loans  they 
grant." 

I'rofUmg  b\  the  e\|>erii'nc c  of  the  past,  banks  have  loaned 
more  c-arehill\  than  lornurh-  in  res])ect  to  security.  The  com- 
parison is  immenselv  in  fuor  of  niodern  institutions  viver  the  old 
ones  in  making  loans  to  sound  |iarties  and  loans  which  are  well 
sec  ured.  The  National  comptroller  has  said  in  one  of  his  rejiorts 
that  a  very  thorough  imestigation  made  b\  skilled  accountants 
into  the  \alue  and  condition  of  the  assets  of  llie  banks  proved 
that  the  bills  and  notes  discounted  were,  to  a  remarkable  extent, 
based  upon  Iwiiij  //,/,-  ii.iusac  lions,  while  the  accommodation  loans 
were  uniformly  sate  and    well   secured. 

Another  remedy  proposed  is  to  grant  loans  lor  a  short  time, 
but  diis  would  not  oI)viate  many  of  the  financial  embarrassments 
which   occur,  for   in    1857  several   of   the   wealthiest  houses  in   New 


136  THE    GOOD    AND    EVIL    OF    BANKING. 

York  city  failed  to  pay  their  paper  which  had  only  fifteen  days 
to  run.  Indeed,  it  may  be  regarded  as  an  open  question  whether 
the  community  does  not  suffer  more  by  short  accommodations 
than  by  longer  ones. 

Again,  banks  should  be  very  slow  in  withholding  their  usual 
aid  to  their  customers.  It  is  true  that  no  bank  is  justified  in 
making  a  loan  that  will  not  probably  be  repaid.  But  it  is  the 
universal  testimony  of  nearly  all  the  observers  of  the  various 
financial  crises  through  which  this  country  and  England  have 
passed,  that  the  banks  have  withheld  their  usual  advances  with- 
out cause.  This  was  the  opinion  of  the  Bullion  Committee  of 
1 8 10,  in  respect  to  the  English  crises  of  1793  and  '97.  The 
same  is  true  in  respect  to  the  American  crisis  of  18 19,  when 
New  York  and  all  the  Southern  and  Western  States  suspended 
specie  payments.  Boston  continued  to  make  discounts  as  before, 
though  many  regarded  it  as  madness  for  her  to  do  so.  But  the 
result  was  that  she  and  all  New  England  were  saved  from  the 
loss  which  swept  over  the  other  States.  In  the  crisis  of  1857,  a 
writer  for  the  Bafiker's  Magazine  at  that  time,  wrote  that  "  the 
contraction  of  bank  accommodations  at  New  York,  it  is  now  con- 
ceded, was  unnecessarily  sudden  and  too  great.  .  .  .  This 
course  of  contraction  is  now  considered  by  our  leading  bank 
directors  as  unnecessary,  and  as  productive  of  nearly  all  the  evil 
that  has  arisen.  A  more  liberal  policy  would  have  relieved  the 
merchants,  and  thus  would  have  saved  the  merchants  extraordi- 
nary losses."*  Indeed,  many  of  them  saw  the  end  of  their  fatal 
pohcy,  and  made  an  effort  to  extend  their  loans;  but,  as  all  the 
banks  would  not  agree  to  this,  it  was  finally  abandoned. 
Although   the    crisis    was  felt    very   severely   in    England,    yet   its 

'  Bank.  Mag.,  vol.  12,  p.  430. 


THE    GOOD    AND    EVIL    OF    BANKING.  I37 

worst  efifects  were  arrested  by  pursuing  the  opposite  policy, 
namely,  the  expansion  of  loans.  By  this  course  the  great  Ameri- 
can firm  of  Peabody  &  Company,  which  was  known  to  be 
greatly  embarrassed,  though  perfectly  solvent,  was  saved.  The 
English  bankers  had  grown  wise  by  their  former  experience,  and, 
instead  of  withdrawing  their  confidence  in  the  mercantile  com- 
munity when  greater  confidence  was  required,  and  when  confi- 
dence was  all  that  was  necessary  to  save  it,  that  confidence  was 
freely  given.  Had  the  American  bankers  been  as  wise  as  their 
English  compeers,  the  crisis  on  this  side  of  the  water  would  never 
have  extended  its  ruffles  across  the  ocean.  The  truth  of  this 
assertion  is  most  clearly  proven  in  the  fact  that  the  crisis  began 
to  subside  as  soon  as  discounts  were  renewed. 

Another  security  against  panics  is  the  keeping  of  generous 
deposits.  There  is  a  decided  tendency  among  banks  to  loan  their 
deposits  too  closely.  This  arises  from  the  fact  that  in  New  York 
and  other  places  interest  is  allowed  on  them.  This  practice  can- 
not be  too  strongly  deprecated.  Of  course,  in  order  to  save 
themselves  against  loss,  the  banks  are  obliged  to  loan  their 
deposits  as  quickly  as  possible,  and  ofttimes  upon  insulficient 
security,  or  to  persons  who  will  not  employ  them  in  a  ])rofitable 
manner.  Moreover,  an  amount  of  capital  is  being  sunk  in  rail- 
way and  other  enterprises  at  the  present  time,  which  is  very 
lightly  considered.  In  addition  to  this  loss  of  capital,  the  indus- 
trial world  is  greatly  disturbed,  which  has  a  marked  tendency  to 
cause  a  derangement  of  prices,  and  to  recjuire  the  withdrawal  of 
a  greater  portion  of  bank  deposits.  With  the  cessation  of  labor 
comes  a  decline  in  the  sale  of  goods,  so  tlial  ilic  merchant  is 
unable  to  meet  many  of  his  payments,  which  he  expected  to 
meet   from    the    sale   of  his    products.      He,  therefore,  has  to  look 


130  THE    GOOD    AND    EVIL    OF    BANKING. 

to  the  bank  for  more  extensive  accommodations.  In  short,  it  is 
safe  to  say,  that  in  consequence  of  the  greater  competition  in 
some  kinds  of  lousiness,  and  Ihc  diminution  of  profits  therefrom, 
the  depression  and  derangement  in  various  trades  and  industries, 
and  the  loss  of  weaUh  in  unprofitable  investments — all  these  facts 
and  indications  sliould  lead  the  banks  to  keej)  a  larger  portion  of 
their  deposits  on  hand,  so  that  they  may  be  able  to  meet  new 
emergencies  that  may  arise. 

A  last  preventive  of  financial  crises  is  co-operation.  This  may 
seem  impracticable  in  our  country,  though  it  has  been  found 
feasible  elsewhere.  Thus,  in  Scotland,  in  1857,  after  the  fall  of 
ihe  Western  Bank,  the  other  banks  having  central  establishments 
in  Edinburgh,  seeing  that  the  panic  was  assuming  a  most  destruct- 
ive intensity,  resolved  to  co-operate  strenuously  in  the  support  of 
ea<h  other.  "Accordingly,"  says  Patterson,*  "as  fast  as  gold 
was  withdrawn  from  the  Union  Bank  and  deposited  with  some 
•  of  the  other  establishments,  it  was  immediately  returned  to  the 
menaced  bank.  And  thus  on  that  critical  12th  of  November, 
there  was  a  double  current  of  gold  passing  up  and  down  Bank 
street — anxious  dejiositors  carrying  off  their  heavy  bags  in  cabs, 
while  steady  bank  clerks,  with  equal  promptitude,  carried  back 
the  bags  to  the  Union  Companv.  There  was  a  dash  of  the 
humorous  in  the  operation,  but  no  measure  could  have  been 
more  beneficial  alike  to  the  banks  and  to  the  public.  .  .  .  In- 
deed, it  is  a  curious  fact  that  the  greatest  transfer  of  accounts 
from  the  Union  Bank,  in  1857,  was  made  to  the  Bank  of  Scot- 
land, which  is  only  distant  some  two  hundred  yards — the  panic- 
stricken  bearers  of  gold  evidently  being  anxious  to  be  rid  of  their 

*  Economy  of  Capital,  p.   114. 


THE    GOOD    AND    EVIL    OF    BANKING.  139 

{)recious  burden  as  soon  as  possil)le,  and  depositing  il  iircordingly 
with  the  nearest  of  the  other  banks."* 

How  marked  the  contrast  between  the  action  and  wisdom  of 
the  Scotch  banks  and  that  displayed  by  the  New  York  City 
banks  in  the  crisis  of  1857.  When,  for  instance,  the  East  River 
Bank,  on  Saturday,  the  14th  of  October,  wanted  only  $  20,000 
in  coin  to  sustain  itself,  and  a|)i)lied  to  several  large  banks  for 
assistance,  they  refused  to  give  it.  Instead  of  making  common 
cause  with  the  weaker  banks,  the  stronger  ones  seemed  determined 
to  break  the  others  in  order  to  retain  their  own  presumed  strength. 
They  failed  to  comprehend  their  real  situation — that  the  cause  of 
the  weaker  banks  was  their  own,  and  that  l^y  helping  these  they 
were  strengthening  themselves.  Co-operation,  therefore,  among 
banks,  is  the  true  rule.  I'hey  should  profit  by  the  wisdom  of  the 
Scotch  banks,  and  by  their  own.  Thev  should  remember  that 
they  stand  upon  a  very  thin  crust  wliich  may  at  any  time  be 
easily  l)roken  through,  and  that  the  difference  in  thickness  be- 
neath one  bank  and  another  is  not  very  great  after  all. 

We  think  that  there  are  some  favoring  circumstances  to  b.mk 
co-0})eration  even  in  this  country.  Most  of  them  are  organized 
and  doing  business  under  the  same  system,  so  that  in  respect  to 
their   circulation    all    are   similarly  circumstanced.      Besides  this  fact, 

■"The  proceeding,  wc  need  hardly  remark,  w.ts  perfectly  legitimate.  The  banks  to  which  the 
customers  of  tlir  IInrin  Bank  transferred  their  accounts  became  responsible  for  tlie  sums  thus 
deposited  with  them.  That  was  a  terminateo  transaction.  The  lending  of  the  gold  by  these 
banks  to  their  menaced  comrade  was  a  separate  affair — amply  justified  alike  by  the  solvency  of 
the  establishment  to  which  the  loan  was  made,  and  by  the  advantage  which  resulted  from  it  to 
all  the  banks,  as  well  as  to  the  community  at  large.  Such  united  action  on  the  part  of  the 
Scotch  banks,  if  timeously  -commenced,  is  adequate  to  stop  the  heaviest  run  for  gold  which  any 
panic  can  occasion.  To  withdraw  money  in  gold  is  a  cumbrous  and  anxious  process.  One 
would  require  a  cab  to  carry  away  even  ;(^i,ooo  in  sovereigns.  Moreover,  no  one  is  willing  to 
run  the  risks  attendant  upon  keeping  a  larger  sum  of  gold  in  !iis  house  or  office.  And,  hence, 
as  happened  in  Scotland,  in  1857,  money  which  is  withdrawn  from  a  bank,  not  for  business 
purposes,   but  simply  in   consequence  of  distrust,  is  immediately  deposited  with  another  bank." 

— Patterson. 


14°  THE    GOOD    AND    EVIL    OF    BANKING. 

there  is  another  of  great  importance — that  the  banks  grouped  to- 
gether in  two  or  three  of  our  large  cities  really  determine  the 
action  of  the  rest.  The  banks  located  in  each  of  these  places 
can  support  one  another  quite  as  well  as  the  Scotch  banks,  if 
they  only  Avill.  And  if  they  pursue  this  policy,  rather  than  the 
unhappy  one  that  has  characterized  them  in  the  past — of  each 
looking  out  only  for  itself — no  doubt  that  banks  in  other  places 
will  be  led  to  act  in  like  manner,  and  thus  co-operation  be  secured. 
The  foregoing  was  written  before  the  panic  of  1873.*  The 
action  taken  by  the  banks  then,  and  the  splendid  effects  of  co- 
operation, prove  the  truth  of  our  observations,  which  are  merely 
the  deductions  of  previous  experience. 

'  Bank.  Mag.,  vol.   26,  p.   357. 


XL 

THE    FINANCIAL     PANIC    OF    1873, 


A  panic  is  a  felicitous  term  for  a  disaster  such  as  that  which 
overtook  the  country  in  the  autumn  of  1873.  Men  were  jjanic- 
stricken  in  respect  to  their  money  affairs,  just  as  sol(Hers  are 
sometimes  panic-stricken  in  the  presence  of  the  enemy.  They 
were  frightened,  and  sold  their  property  at  ruinous  rates  ;  or  did 
anything  else  according  to  tlie  whim  of  the  hour.  Men  noted  for 
their  coolness  and  deliberation,  especially  in  time  of  severe  trial, 
bent  before  the  storm,  lost  their  reason,  acted  like  madmen,  and 
sacrificed  their  property  and  reputation  with  scarce  a  thought  of 
what  they  were  doing.  They  ceased  to  be  masters  of  themselves. 
The  fortunes  they  had  amassed  were  ruined,  and  many  of  the 
institutions  they  had  built  up  according  to  the  most  approved 
manner,  as  it  was  supposed,  [lerished  as  lucklessly  as  their  man- 
agers. 

What  were  the  causes  of  these  cpieer  phenomena  ?  For  months 
the  panic  had  been  ]}redicted.  Shrewtl  observers  could  read 
unmistakable  signs  of  its  coming.  In  fact  they  were  not  very 
obscure. 

An  enormous  amount  of  uionc)  had  been  iiucsted  in  new  rail- 
road   enterprises    which    do    not    pa)\    and    will    not    for    years    to 


142  THE    FINANCIAL    PANIC    OF    1873. 

come.  The  Northern  Pacific  Railroad  is  a  notable  illustration. 
Running  through  an  almost  uninhabitable  wild  for  the  greater 
part  of  the  way,  and  constructed  thus  far  at  great  expense,  it  will 
cost,  when  completed,  $100,000,000,  and  for  twenty  years,  and 
perhaps  longer,  no  dividends  will  be  declared.  Simi'ar  enterprises 
have  been  launched  upon  the  country,  in  which  an  enormous 
,  amount  of  capital  has  been  sunk.  The  country  is  poorer  by 
every  unprofitable  railroad  built.  True,  a  portion  of  capital  may 
be  invested  without  the  expectation  of  present  gain,  but  no  nation 
can  afford  to  invest  more  than  a  small  amount  in  this  way.  For 
the  last  six  or  seven  years  this  country  has  greatly  exceeded  the 
limit.  It  has  fixed  more  capital  than  it  could  withdraw  from  the 
floating  mass  without  creating  confusion  and  distress. 

It  may  be  asked,  how  was  it  possible  to  gather  so  much 
money  for  such  foolhardy  enterprises  ? 

To  begin  with,  the  judgment  of  man  is  not  always  correct. 
OvEREND,  GuRNEv  &  C().  had  a  reputation  next  to  the  Bank  of 
England  for  being  careful  and  sound  bankers,  and  immense  sums 
were  deposited  with  them ;  yet  in  six  years  they  ran  through  their 
colossal  capital  and  became  i)ankrupts.  The  most  careful  will 
blunder.  Undoubtedly,  when  Jay  Cooke  &  Co.  undertook  to 
negotiate  the  Northern  Pacific  Railroad  bonds,  they  thought  the 
road  would  be  a  profitable  enterprise.  They  were  too  sanguine. 
It  is  not  fair  to  say  that  they  swindled  the  public,  for  the  heavy 
advances  made  by  themselves  are  not  consistent  with  the  charge 
of  fraud.  The  millions  of  their  own  property  buried  in  this 
undertaking  prove  that,  however  defective  their  judgment,  they  at 
least  were  lionest.  The  same  may  be  said  of  other  enterprises. 
Men  are  continually  deceiving  themselves.  Engineers  and  con- 
tractors make    mistakes   in  estimates   and   lead    others  into  trouble. 


THE    FINANCIAL    PANIC    OF    1873.  143 

Many  a  man  supposed  to  be  clear-headed  and  far-sighted  is  not 
so  in  fact.  He  may  have  been  successful  in  business,  and  have 
amassed  a  large  fortune  through  pure  luck.  The  world  judges  by 
outside  signs,  for  it  can  judge  Ijy  no  other,  and  when  success  is 
seen  its  possessor  is  forthwith  credited  with  ability.  A  captain 
crosses  the  ocean  fifty  times  and  never  meets  with  an  accident; 
he  has  had  fair  weatlier  all  tlie  time;  on  his  fifty-first  voyage  he 
encounters  a  gale  and  is  wrecked.  When  his  abifity  is  tested 
adetiuately  he  is  found  deficient,  and  thus  with  thousands  of  men 
in  life.  They  have  enough  ability  for  all  ordinary  enterprises,  or 
they  may  accomplish  some  great  feat  through  luck  ;  but  when  the 
construction  of  a  great  railway  is  undertaken,  and  gigantic  plans 
are  necessary,  and  wide  and  careful  observation,  the  ability  to 
thus  plan  and  observe  is  wanting.  Numerous  projects  have  Ijcen 
floated  upon  the  'great  names  of  Wall  Street  financiers,  who  are 
found  to  be  as  unsound  in  their  h.eads  as  in  their  jxjckets,  and 
grossly  ignorant  of  the  magnitude  of  their  undertakings. 

'I'his  truth  cannot  l)e  driven  lioinc  too  deei)ly,  that  a  great 
many  liave  no  ability  commensurate  with  llicir  reputation.  They 
honestly  sujjpose  tliey  have  it,  yet  are  mistaken.  Deceiving  them- 
selves, they  end  in  decei\ing  others.  ( )f  covusc,  tiiere  is  no  sure 
way  of  distinguishing  the  trul\  sound  and  conservative  men  tiom 
those  who  merely  a]j])ear  so,  but  il  is  certain  that  people  should 
have  hir  less  faith  in  the  ability  and  ofltimes  in  ihc  honesty  of 
others,  than  lliey  do  ha\c,  and  make  more  caicliil  iii(|un\  before 
entrusting  them    widi    inone\    and   other  property. 

Another  reason  win  maii\  |ieisoii.^  ha\e  in\'ested  111  nuserable 
schemes  is  that  they  are  intentionall)'  deceixcd.  il  is  a  lament- 
able tact  that  men  who  have  a(  quired  an  enxialile  rejiutation  fijr 
honesty  and  ability  sell  out   ui   older  to    make    money.      The  story 


144  THE    FINANCIAL    PANIC    OF   1873. 

is  often  repeated.  A  manufacturer  wins  a  great  reputation  for 
manufacturing  splendid  goods.  They  are  wrought  of  the  best 
material,  and  the  work  is  performed  by  skillful  hands.  His 
goods  are  in  demand  everywhere.  Having  reached  the  summit 
of  his  reputation,  he  begins  to  manufacture  goods  of  an  inferior 
quality.  He  imposes  upon  the  public.  Just  so  do  brokers  and 
bankers  impose  upon  the  public.  They  are  told  that  securities 
are  perfectly  sound,  that  the  interest  upon  them  will  be  promptly 
paid,  when  the  negotiators  know  that  the  truth  is  exactly  the 
opposite.  Receiving  a  large  commission  for  their  negotiations, 
they  allow  that  consideration  to  outweigh  the  ruin  of  their  own 
reputations,  and  the  loss  to  the  deluded  holders  of  such  securities. 
They  are  willing  to  bear  all  the  odium  that  will  be  heaped  upon 
themselves  for  the  sake  of  the  reward  they  are  to  receive. 

It  would  be  a  waste  of  time  and  space  to  recount  the  projects 
to  which  men  who  have  achieved  a  fine  reputation  have  lent  it 
and  ruined  it  for  a  reward.  Often  when  oil,  mining,  and  other 
speculative  or  bogus  companies  have  been  organized,  some  noted 
names  are  secured  to  head  these  organizations,  upon  whose  repu- 
tation stocks  are  sold  and  innocent  purchasers  beguiled.  Many 
are  just  beginning  to  open  their  eyes  and  find  out  how  they  have 
been  duped  by  those  in  whom  they  had  reposed  the  greatest  con- 
fidence. 

Another  way  in  which  the  public  have  been  beguiled  into  pur- 
chasing railway  bonds  is  by  being  led  to  suppose  the  roads  to  be 
bonded  less  heavily,  in  proportion  to  their  entire  cost,  than  they 
are.  Formerly,  railroads  were  built  principally  by  means  of  stock 
subscriptions,  the  bonds  constituting  much  the  smaller  part  of  the 
capital  invested.  In  those  days  bonds  were  safe  investments. 
Now,  the  mode  is  reversed ;  bonds  are  sold  for  nearly  the  cost  of 


THE    FINANCIAL    PANIC    OF    1873.  I45 

constructing  the   road,    and  a  little   stock    issued    merely  to    center 
the  control  of  the  enterprise  in  a  few  persons. 

So  long  as  these  bonds  constituted  only  a  small  portion  of  the 
capital  invested  in  railway  enterprises,  they  were,  in  most  cases, 
sound  investments,  and  found  a  ready  sale  in  the  market.  But,  as 
we  have  just  remarked,  no  sooner  had  railway  bonds  become 
popular  with  investors  than  the  issuers  took  advantage  of  their 
high  estimation  to  issue  a  larger  amount  of  bonds  per  mile  in 
proportion  to  the  stock  of  a  road  than  formerly.  In  other  words, 
confidence  in  railway  bonds  having  become  strong,  railroads  have 
terribly  abused  that  confidence  and  nearly  destroyed  it.  Of  late, 
issues  have  been  made  upon  very  inadequate  security,  and  hold- 
ers are  likely  to  incur  heavy  losses.* 

The  last  cause  which  we  shall  mention  inducing  the  panic,  was 
the  inflation  of  the  currency.  Too  much  has  been  issued,  and 
the  natural  result  was  imprudent  investments.  This  is  not  the 
first  time  a  plentiful  supply  of  currency  has  led  to  unwise  investing. 
Macaulay  has  narrated  the  history  of  former  rash  investments 
arising  from  a  similar  cause.  In  1688  there  was  an  excessive 
supply  of  money  in  England.  "  In  the  short  space  of  four  years 
a  crowd  of  companies,  every  one  of  which  confidently  held  out 
to  subscribers  the  hope  of  immense  gains,  sprang  into  existence — 
the  Insurance  Company,  the  Paper  Company,  the  Lutestring 
Company,  the  Pearl  Fishery  Company,  the  Glass  Bottle  Company, 
the  Alum  Company,  the  Blythe  Coal  Company,  the  Swordblade 
Company.  There  was  a  Tapestry  Company,  which  would  soon 
furnish  pretty  hangings  for  all  the  parlors  of  the  middle  class,  and 
for    all    the    bedchambers    of   the    higher."      A    Copper    Company 

*  Sec  an  excellent  article  in  The  Nation,  entitled  The  Railroad  Mania,  in  which  the 
method  of  organizing  a  modern  railroad  and  raising  money  to  build  it  it  succinctly  given. 
Vol.  8,  p.    185. 

I  I 


146  THE    FINANCIAL    PANIC    OF    1873. 

proposed  to  explore  the  mines  of  England  ;  a  Diving  Company- 
undertook  to  bring  up  precious  eftects  from  shipwrecked  vessels ; 
and  a  Greenland  Fishing  Company  could  not  fail  to  drive  the 
Dutch  whalers  from  the  Northern  Ocean.  The  same  state  of  things 
prevailed  when  the  South  Sea  Bubble  broke.  Macaulay  has 
described  some  of  the  companies  formed  a  little  before  this  time. 
"  Wrecks  to  be  fished  for  on  the  Irish  Coast  —  Insurance  of 
Horses  and  other  Cattle — Insurances  of  Losses  by  Servants — To 
make  Salt  Water  Fresh — For  building  of  Hospitals  for  Bastard 
Children — For  building  of  Ships  against  Pirates — For  making  of 
Oil  from  Sun-flower  Seeds — For  improving  of  Malt  Liquors — For 
recovery  of  Seamen's  Wages — For  extracting  of  Silver  from  Lead 
— For  the  transmuting  of  Quicksilver  into  a  malleable  and  fine 
Metal — For  making  of  Iron  with  Pit-coal — For  importing  a  large 
number  of  Jack  Asses  from  Spain — For  trading  in  Human  Hair — 
For  fatting  of  Hogs — For  a  Wheel  of  Perpetual  Motion." 

In  these  several  ways,  the  public  have  been  beguiled  into  in- 
vesting very  heavily  in  bonds  and  stocks  that  are  of  very  little  or 
no  value.  It  is  true  that  after  many  years,  the  lands  along  the 
line  of  these  silent  or  lightly-traveled  railroads  will  be  taken  up, 
and  then  they  will  pay.  Long  before  that  time  the  stocks  and 
bonds  will  have  been  sold  for  a  song,  and  some  of  those  who 
first  invested  in  them  will  have  become  bankrupt.  Of  course,  so 
far  as  the  circulating  medium  is  concerned,  it  makes  little  differ- 
ence whether  it  is  paid  out  for  profitable  or  unprofitable  enter- 
prises, for  there  is  just  the  same  amount  in  the  one  case  as  in  the 
other.  But  one  person  can  much  better  afford  to  throw  away  a 
part  of  his  capital,  or  invest  it  where  no  immediate  return  is  ex- 
pected, than  another.  In  fact,  no  person  ought  to  invest  in  a 
hazardous  enterprise,  or  one  where  dividends  will  be  long  deferred, 


THE    FINANCIAL    PANIC    OF    1873.  I47 

any  portion  of  his  wealth,  the  want  of  which  will    cripple   him   in 
business  or  living,  if  returns  should  be  long  delayed. 

It  may  be  asked,  where  is  the  loss  in  such  enterprises  ?  The 
quantity  of  money  in  the  country  is  the  same,  the  laborers  have 
had  employment,  and  the  rich  have  paid  for  it.  Has  anything 
taken  place  except  a  change  of  this  money  from  the  pockets  of 
the  rich  to  the  poor  ?  Is  not  this  desirable  ?  Something  more 
has  taken  place.  All  the  labor  of  the  thousands  of  men  thus 
engaged  in  unproductive  employment  has  been  thrown  away.  It 
is  not  the  loss  of  money,  but  the  loss  of  labor  and  capital.  Sup- 
pose they  had  been  employed  productively  in  improving  the  high- 
ways and  bridges  of  the  United  States,  for  example,  what  a 
beautiful  system  of  streets  and  highways  would  have  existed  over 
the  land  ! 

The  waking  up  to  the  realization  that  many  of  the  railroad 
stocks  and  bonds  of  the  country  were  worthless  or  very  poor 
property,  coupled  with  the  failure  of  some  noted  houses  which 
had  been  aiding  railway  schemes,  brought  on  the  panic.  When 
public  confidence  began  to  fail  it  were  easy  to  depict  the  conse- 
quences that  were  sure  to  follow.  For  the  panic  took  the  same 
course  as  many  of  its  predecessors,  and  it  was  not  difficult  to  tell 
what  was  coming.  The  weakening  of  the  prices  of  some  stocks 
at  once  affected  the  valUc  of  the  rest.  The  entire  stock  market 
at  once  became  unsettled.  Hanks  which  had  made  enormous 
loans  upon  stock  collaterals  began  to  quake.  They  saw  stocks 
going  down  below  the  margins,  and  they  at  once  began  to  sacri- 
fice their  securities  to  save  themselves.  This  was  perfectly  legiti- 
mate, and  no  one  could  coni|)lain ;  but  when  the  market  was 
deluged  with  great  quantities,  prices  declined  violently.  Others 
became  frightened  and    wanted    to    sell.      In    this    way    the    utmost 


148  THE    FINANCIAL    PANIC    OF   1873. 

confusion  was  produced,  prices  grew  low,  and  every  one  turned 
pale.  To  enhance  the  difficulty,  many  of  the  houses  having  large 
deposits  payable  on  demand  were  called  upon  to  respond.  They 
were  distrusted.  Rightfully,  too,  for  they  had  no  money.  It  was 
all  loaned  to  speculators,  and  could  not  be  obtained.  The  banks 
could  afford  little  help  to  any  one  outside  of  their  customers,  and 
their  wants  in  many  cases  could  not  be  supplied,  for  the  banks 
were  expecting  a  large  withdrawal  of  deposits.  Stocks  continued 
to  decline,  and  the  diflficulty  was  aggravated.  There  was  no  way 
of  preventing  it,  for  those  having  confidence  in  certain  stocks,  and 
who  were  desirous  of  purchasing  them,  had  no  money  to  buy. 
Thus  the  panic  originated  in  a  lack  of  confidence ;  first  one  was 
suspected,  then  another,  and  finally  nearly  all  were.  When  confi- 
dence was  broken  down  more  money  was  needed  to  do  business, 
and  the  sales  of  property  at  ruinous  rates  were  made  to  get  it. 
But  so  many  wanted  money  there  were  no  buyers,  all  were  sell- 
ers. To  suppose  that  $44,000,000  of  legal  tenders  would  have 
supplied  the  demand  for  money  at  this  time  betrays  a  great  igno- 
rance of  the  facts.  A  vast  sum  was  needed  because  of  the 
wholesale  destruction  of  credit. 

It  is  true  the  banks  were  not  the  originators  of  this  panic,  nor 
did  they  help  it  on,  except  in  the  way  of  loaning  funds  to  specu- 
lators. When  the  crisis  came  the  banks  conducted  their  business 
admirably.  Remembermg  their  former  experience — that  in  divi- 
sion all  must  fail — they  united  and  weathered  the  storm  which  at 
first  threatened  to  overwhelm  them.  Co-operation  saved  them ; 
division  would  surely  have  caused  their  destruction. 


XIL 


THE  RELATION    OF    BANKS    TO    SPECULATORS. 


Speculation  in  wealth  is  not  the  production  of  wealth,  [f  I 
borrow  one  hundred  thousand  dollars  to  buy  stocks,  and  m  tlnce 
months  they  have  risen,  while  in  my  possession,  one-quarter  of 
their  original  cost,  I  have  produced  nothing.  I  have  added 
nothing  to  the  nation's  wealth.  The  stocks  existed  before  I  pur- 
chased them ;  they  exist  now  without  any  additional  value  by  any 
effort  of  mine.  This  cannot  be  denied.  And  the  same  affirmation 
is  true  in  respect  to  anything  that  I  may  buy.  If  wheat,  for 
instance,  is  purchased  and  held  for  a  rise,  which  afterwards  takes 
place,  I  have  added  nothing  to  production ;  I  have  performed  no 
labor  upon  it  to  enhance  its  value.  No  greater  quantity  exists 
now  than  existed  before.  The  whole  business  of  speculation, 
therefore,  is  to  be  condemned  because  it  is  non-productive.  To 
this  principle  there  is  no  exception  of  a  single  commodity  which 
may  rightly  form  the  subject  of  speculation.  Whether  speculation 
is  in  stocks,  or  in  the  daily  necessaries  of  life,  the  principle 
remains  the  same. 

Perhaps  if  we  delay  a  moment  upon  the  meaning  of  produc- 
tion, the  truth  of  this  principle  may  be  more  apparent.  By  pro- 
duction is  meant  the  doing  of  anything  to  a  commodity  by  which 


150  THE    RELATION    OF    BANKS    TO    SPECULATORS. 

its  value  is  increased.  Thus,  if  A  goes  to  Chicago  and  buys 
wheat  and  transports  it  to  New  York  and  sells  it,  he  is  a  pro- 
ducer according  to  the  above  meaning  of  the  term.  He  adds 
value  to  the  wheat.  Labor,  or  difficulty  of  attainment  is  one  of 
the  indispensable  elements  of  value.  Any  man,  therefore,  who 
adds  labor  to  a  thing  is  a  producer,  provided  his  labor  be 
desired  or  has  value.  The  speculator  never  enhances  the  value  of 
anything;  or,  if  he  does,  it  is  not  by  means  of  labor,  but  by 
various  practices  and  arts  that  are  economically  and  morally 
wrong. 

Hence,  we  repeat,  that   speculation   is    an    unlawful   calling,  and 
is  detrimental   to  every    interest   of   society.      The    speculator   adds 
nothing  to  the  wealth  of  society ;    it  would  be  as  well  off  without 
as  with    him,  so  far  as  producing    anything   is  concerned.     In  this 
respect  he  is  only  a  blank.     Yet    if   he   had  simply  neutral    quah- 
ties,  society  and  commerce  would  have  reason  to  rejoice.     But  he 
is  the  foe  of   every    man    who    is    engaged    in    production.     He    is 
the  foe  ahke  of  the    poorest    man    who   toils   for   his    daily  bread, 
and  the  rich  man  who  is  obhged   to   purchase   of  him.      Do   you 
inquire   how  ?      By  using   the   money  that    is   required    in    produc- 
tion  for   purposes    of  speculation.     The  amount   of  wealth    m    the 
world    is   limited,  and  it    is    all   needed  in    producing  more  wealth. 
It    is   required  by  the   merchant,    the   contractor,    the   railroad,    by 
thousands    of  men    and    corporations,    to    enable    them    to    pay  for 
labor    and  other    things  ;    in  short,  to  carry  on    their   business,  and 
to  add    to  the  wealth  of   the  world.     Now,  it  is  clear  that  all   the 
wealth  employed   in  speculation    is  withdrawn  from  other   kinds  of 
business.       If  money    is    loaned    to    a    broker    to    buy   stocks,  it    is 
diverted  from  the  manufacturer,  who  needs   it  to    pay   for  help,  or 
to  buy  cotton.      In    order,    therefore,   for    the    manufacturer    to    get 


THE    RELATION    OF    BANKS    TO    SPECULATORS.  I5I 

it,  he  must  pay  a  higher' rate  of  interest  than  would  be  paid  if 
no  money  were  diverted  into  speculative  channels.  The  manu- 
facturer, in  turn,  must  sell  his  goods  for  a  higher  price,  which 
is  ultimately  paid  by  the  consumer,  and  thus  the  fact  rises  to  the 
surface,  that  speculators  are  the  foes  alike  of  the  rich  and  the 
poor,  because  they  enhance  prices  by  diverting  from  production 
the  wealth  that  is  needed  for  this  purpose. 

Speculation  is  to  be  condemned  on  two  grounds:  First,  because 
it  is  a  non-productive  business ;  and,  secondly,  because  it  diverts 
wealth  from  productive  business,  thereby  disturbing  prices  and 
adding  to  the  burdens  of  society.  But  it  is  said  that  speculation 
is  not  always  detrimental  to  the  welfare  of  society.  Thus,  The 
JVatioH,  in  1866,  said  that  "speculation  in  gold  (during  the  war) 
had  certain  beneficial  results  which  outweighed  its  evils.  It  tended 
to  keep  gold  in  the  country,  by  giving  its  holders  the  continual 
prospect  of  an  advance,  without  which  it  would  all  ha\e  left  the 
country  in  1862,  and  have  remained  abroad  until  the  close  of  the 
war,  since  it  would  have  been  quite  useless  here,  and  a  mere 
dead-weight  upon  its  holders.  Abroad  it  would  have  drawn  inter- 
est;  here,  it  would  not.  The  chances  of  speculation,  however, 
seemed  to  promise  something  better  than  interest  at  foreign  rates, 
and  an  immense  amount  of  gold  was  kept  here,  to  the  obvious 
strengthening  of  the  National  credit ;  both  the  Government  and 
the  banks  having  always  a  handsome  specie  reserve.  Tlie  very 
excess  of  speculation  tended  to  produce  this  result,  as  it  made 
shipments  decidedly  unprofitable,  and  foreign  exchange  unsalable. 
Thus  we  closed  the  war  with  a  very  respectable  stock  of  gold, 
which  then  became  available  to  the  pul)lic  at  prices  which  were 
only  too  moderate."* 

*   The  Nation,  vol.  2,  p.  809. 


152  THE    RELATION    OF    BANKS    TO    SPECULATORS. 

It  may  be  fairly  questioned  whether  "speculation  in  gold 
outweighed  its  evils."  Prices  were  unsettled,  causing  greater  loss 
and  suffering.  Any  business  that  unsettles  prices  is,  generally, 
to  be  condemned.  One  of  the  worst  evils  that  can  befall  so- 
ciety is  to  have  prices  in  an  unsettled,  fluctuating  state.  Thous- 
ands of  people  lose  by  a  change  in  the  price  of  merchandise. 
Yet  this  unsettled,  disturbed  state  is  brought  about  by  speculation. 
Indeed,  it  is  the  state  in  which  the  speculator  most  deUghts  to 
live.  So  long  as  the  ocean  of  trade  is  calm,  the  speculator  is 
like  a  ship  with  its  sails  uselessly  suspended  in  the  air ;  he  does 
not  move.  On  the  other  hand,  the  merchant,  like  a  steamboat, 
passes  over  the  surface  of  the  untroubled  waters,  all  the  easier 
and  steadier  because  there  is  no  disturbing  breeze.  But  when  the 
wind  springs  yp,  then  the  speculator  rejoices,  for  he  can  fill  his 
sails  and  steer  his  vessel  across  the  intended  track  of  the  trader, 
rendering  his  future  more  difficult  and  uncertain,  by  causing  a  de- 
rangement of  prices,  and  by  baffling  the  interests  and  prospects  of 
trade.  Not  only  were  prices  unsettled  and  capital  diverted  by 
speculation  in  gold,  but  industry  and  ability  also.  Thousands  who 
were  needed  in  other  callings,  forsook  them  to  follow  the  bewitch- 
ing life  of  a  speculator.  Or,  if  they  continued  in  their  former 
occupations,  their  minds  were  not  chained  to  work  as  before. 
But  is  it  true  that  speculation  "  tended  to  keep  gold  in  the 
country  ?"  If  it  did  tend  that  way,  then  we  have  this  curious  and 
melancholy  fact,  that  gold  was  more  potent  to  the  speculator  for 
the  purposes  of  speculation  than  to  the  trader  for  the  purposes  of 
exchange.  Was  this  true  ?  It  may  have  been,  but  it  is  hard  to 
believe  that  speculation  competed  so  successfully  with  the  regular 
demands  of  commerce,  that  it  became  the  omnipotent  master  of 
the  universally  recognized  instrument  of  exchange.     But   if  it   did 


THE    RELATION    OF    BANKS    TO    SPECULATORS.  153 

— if  gold  was  kept  in  the  country  by  speculation,  was  it  "  to  the 
obvious  strengthening  of  the  National  credit  ?"  Certainly,  not  all 
the  gold  in  the  country  belonged  to  the  National  Government,  and 
the  portion,  not  so  owned,  could  have  had  very  little  influence  in 
the  "  strengthening  of  the  National  credit."  And  if  we  owed  debts 
abroad  which  only  gold  could  discharge,  was  the  National  credit 
more  strengthened  by  the  existence  of  such  a  strong  spirit  of 
speculation  that  gold  was  tempted  to  remain  here  as  an  instru- 
ment of  speculation,  than  the  National  credit  would  have  been 
strengthened  if  the  gold  had  been  sent  away  to  discharge  that 
indebtedness  ? 

TJw  Nation  also  alludes  to  speculation  in  food,  that  it  "  is  often 
censured  with  special  severity.  Yet,"  it  says,  "there  is  nothing  in 
which  it  is  more  plainly  beneficial.  Were  it  not  for  speculators, 
the  farmers  would  be  utterly  unable  to  sell  plentiful  crops,  while 
the  price  paid  by  consumers  would  be  so  low  as  to  lead  to 
extreme  wastefulness.  When  in  the  course  of  nature  a  barren  sea- 
son came  round,  there  would  be  no  stores  laid  up  against  it,  and 
all  the  desolations  of  famine  would  follow.  Joseph  and  Pharaoh 
were,  perhaps,  the  greatest  speculators  on  record ;  and  what 
is  clearer  than  that  their  speculation  in  corn  was  the  salvation  of 
Egypt?"  Now  we  apprehend  that  the  defect  in  this  mode  of 
reasoning  is,  that  the  business  of  an  exchanger  who  is  a  producer, 
is  confounded  with  that  of  a  speculator.  A  man,  it  is  true,  may 
purchase  for  the  sake  of  the  reasonable  gains  to  which  he  is 
entitled,  and  for  nothing  more ;  he  is  then  only  a  producer.  But 
he  may  also  purchase  with  the  expectation  of  an  additional  rise 
which  may  take  place,  from  the  simple  fact  that  by  purchasing  all 
the  wheat  in  the  country,  for  instance,  its  price  may  be  controlled. 
What  we  condemn  is,  the  purchase  of  the  wheat  for  this  latter  pur- 


154         I'HE  RELATION  OF  BANKS  TO  SPECULATORS. 

pose.  Supposing  that  it  was  not  purchased  for  this  end,  is  it  true 
that  "  the  farmers  would  be  utterly  unable  to  sell  plentiful  crops  ?" 
If  wheat  is  needed,  will  it  not  l^e  purchased  by  the  regular  pro- 
ducer, merchant,  or  exchanger,  even  though  a  speculator  is 
unknown  ?  The  writer  says,  "  Were  it  not  for  speculators,  the 
farmers  would  be  utterly  unable  to  sell  plentiful  crops."  Is  this 
true?  Would  the  merchant  fold  his  arms  and  stop  his  ears  so 
that  he  could  not  hear  the  demands  of  his  customers,  while  the 
granaries  of  the  farmers  were  filled  to  bursting  ?  Would  he  forego 
the  reasonable  profits  that  could  be  made  on  the  purchase  and 
sale  of  wheat  to  his  customers,  if  unable  to  reap  the  gains  of 
the  speculator  ?  Such  is  the  effect  of  The  Nation's  argument, 
and  yet  we  see  that  it  is  all  knocked  over  by  the  latter  part  of 
the  very  sentence  just  quoted.  For  he  adds  :  "  The  price  paid  by 
consumers  would  be  so  low  as  to  lead  to  extreme  wastefulness." 
But  he  had  previously  said  that  "  the  farmers  would  be  utterly 
unable  to  sell  plentiful  crops  were  it  not  for  the  speculators."  Is 
it  possible  to  harmonize  these  statements  ?  If  "  the  price  paid  by 
consumers  would  be  so  low  as  to  lead  to  extreme  wastefulness, 
were  it  not  for  speculators,"  then  evidently,  the  people  could 
obtain  the  crops  without  the  speculators,  for  they  could  not  waste 
what  they  did  not  have,  and,  of  course,  the  farmers  ivould  be  able 
to  sell  their  crops.  Nor  do  the  farmers  get  any  more  for  their 
produce  by  selling  it  to  the  speculators,  ordinarily,  than  they  would 
o-et  if  they  sold  directly  to  the  wholesale  or  retail  merchants  or 
their  consumers. 

In  regard  to  the  husbanding  of  stores  for  periods  of  scarcity, 
there  is  no  speculation  in  this.  We  have  said  that  speculation 
consists  in  obtaining  control  of  the  supply  of  a  thing,  so  that  the 
price  thereof  can  be  fixed  by  the  holder  with  the  intention  of  sell- 


THE    RELATION    OF    BANKS   TO    SPECULATORS.  1 55 

ing  at  more  than  a  reasonable  profit.  But  Joseph  and  Pharaoh 
were  not  speculators,  because,  apprehending  a  famine,  they  pro- 
vided against  it  by  storing  up  an  extraordinary  quantity  of  pro- 
visions. There  is  no  speculation,  necessarily,  in  the  purchase  of  a 
large  t|uantity,  but  only  when  the  owner  takes  advantage  of  the 
fact  to  charge  an  extraordinary  and  wrongful  price  for  the  same. 
Consequently,  Joseph  and  Pharaoh  were  not  speculators,  unless 
they  sold  at  such  a  price  ;  and  if  we  remember  correctly,  there  is 
no  proof  that  they  did.  It  may  be  that  with  these  explanations 
there  would  be  no  contrariety  between  the  writer  of  the  article 
above  alluded  to  and  ourselves;  that  the  difference  has  arisen  in 
consequence  of  not  developing  the  subject  as  fully  as  we  have 
done. 

We  believe  the  rule  of  pure  morality  requires  that  only  a  rea- 
sonable profit  be  sought  upon  any  kind  of  product.  What  such 
a  profit  is  depends  upon  circumstances.  If  a  business  involves  a 
tremendous  risk,  a  reasonable  charge  is  greater  than  in  a  business 
unaccompanied  with  risk.  I'hus  the  fruit-dealer  is  justified  in 
charging  more  for  his  fruit  which  is  perishable,  than  a  wheat- 
dealer  for  wheat  which  will  keep.  When  the  Atlantic  cable  was 
laid  and  put  in  successful  working,  the  company  was  justified  in 
charging  more  on  account  of  the  greater  risk,  and  to  get  back 
the  money  sunk  in  previous  unsuccessful  attempts.  But  advant- 
ages are  not  to  be  taken  of  the  scarcity  of  the  market  to  force 
up  prices,  much  less  to  make  the  market  scarce  by  buying  all  the 
goods  of  a  particular  kind  that  are  likely  to  be  in  demand. 
When  prices  are  sought  to  be  influenced  by  any  unfair  means, 
there  is  no  excuse  for  loaning  money  to  help  on  the  movement. 
Every  one  knows  that  railroad  stocks  are  worth,  generally  speak- 
ing,   tiuite     as    much    one    day    as    another;     yet    their    prices    are 


156  THE    RELATION    OF    BANKS   TO    SPECULATORS. 

always  fluctuating,  and  a  great  many  buy,  hoping  to  gain  by 
these  changes.  They  are  caused,  generally,  by  unfair  means,  by 
the  meanest  stories  and  canards.  It  is  an  immoral  business  to 
purchase  stocks  for  speculative  purposes,  or  to  loan  money  to 
those  who  wish  to  do  so.  Banks  have  no  right  to  help  specu- 
lators of  any  kind. 

It  may  be  asked,  what  business  has  a  bank  to  inquire  of  its 
customer  what  he  proposes  to  do  with  his  loan  ?  It  is  sometimes 
the  duty  of  a  bank  to  make  such  inquiry.  Should  a  banker  sus- 
pect that  an  applicant  wanted  a  loan  of  a  thousand  dollars  in  ten 
one-hundred-dollar  bills  for  the  purpose  of  counterfeiting  them,  he 
would  not  have  the  right  to  make,  nor  would  he  make  such  a 
loan.  Neither  is  it  right  for  a  bank  to  make  a  loan  which  is  to 
be  used  in  payment  for  real  estate. 

Formerly,  it  was  the  custom  of  banks  to  assist  only  those  who 
were  engaged  in  productive  occupations — merchants,  manufactur- 
ers, and  the  like.  We  admit  this  custom  has  been  thrown  away 
and  another  adopted,  namely,  that  he  who  pays  best  shall  be 
first  accommodated,  without  considering  or  caring  to  what  use  the 
money  is  to  be  applied.  Instead  of  telling  the  borrower  that  he 
must  engage  in  some  productive  business  if  he  wishes  to  have 
assistance  from  the  bank,  the  only  thing  apparently  thought  of  is 
the  rate  of  interest  and  the  security.  If  the  most  unprincipled 
speculator  in  Wall  Street  pays  a  good  rate  of  interest,  and  fur- 
nishes good  security,  the  bank  makes  no  further  inquiry. 

Banking  capital  is  designed  to  aid  men  in  business,  to  facilitate 
exchanges,  in  paying  for  labor,  goods,  and  the  like,  and  not  in 
erecting  buildings,  paying  for  real  estate,  or  helping  speculators. 
Fixed  capital  should  come  from  individuals  and  savings  institu- 
tions, not  from  banks  of  discount;    hence,  every   application   to    a 


THE    RELATION    OF    BANKS    TO    SPECULATORS.  1 57 

bank  of  discount  for  a  loan  for  either  of  these  latter  purposes 
should  be  at  once  declined. 

Besides,  a  National  bank  has  no  right,  according  to  law,  to  do 
this.  It  is  wrong  not  only  in  an  economic  and  moral  point  of 
view,  but  it  is  contrary  to  the  spirit  and  intent  of  the  National 
bank  act,  under  which  most  of  our  banks  live  and  do  business. 
A  government  official*  has  rightly  said  that  "  a  charter  to  carry 
on  the  business  of  banking  does  not  give  power  to  buy  or  sell 
real  estate,  to  ship  goods  to  a  foreign  port,  or  to  engage  in  or  pro- 
mote any  speculative  operation." 

It  cannot  be  denied  that  our  banks,  especially  m  the  larger 
cities,  assist  speculators  to  an  enormous  extent. t  Thus  we  find  in 
the  United  States  Comptroller's  report  for  1868,  that  "the  bank 
statements  of  New  York,  taken  separately,"  show  the  loans  of 
the  banks  in  that  State  to  have  been   substantially  as  follows : 

Commercial  or  business  paper $90,000,000 

Demand  loans 68,500,000 

Accommodation  loans 3,500,000 

Suspended  loans 1,500,000 

Total $  163,500,000 

Nine-sixteenths  of  these  loans  are  legitimate  business  paper; 
"the  amount  loaned  on  call  for  commercial  purposes  is  not 
stated,  but  reliable  information  leads  to  the  belief  that  it  is  very 
small."  Merchants  cannot  use  to  advantage  money  payable  on 
call,  as  the  goods  which  they  buy  with  it  cannot  be  instantly 
converted  into  cash.     But    stock    and    gold   speculators  can  almost 

*  United  States  Comptroller  of  the  Currency,  report  of  1869. 

t  The  only  notable  refusal  of  banks   to  loan  speculators  is  that  of  the  Western   banks  to   the 
grain  speculators  in  the  summer  of  1870.  —  The  Nation,  vol.  10,  p.  416. 


158  THE    RELATION    OF    BANKS    TO    SPECULATORS. 

always  realize  on  these  forms  of  property  very  quickly,  so  that 
they  are  able  to  use  money  payable  on  call  with  profit.  Hence 
the  United  States  Comptroller  has  drawn  the  inference,  "  that 
nearly  one-half  of  the  available  resources  of  the  National  banks  in 
the  City  of  New  York  are  used  in  the  operations  of  the  stock 
and  gold  exchange." 

"In  addition  to  this  direct  loan  of  $70,000,000,  they  furnish 
facilities  by  means  of  certified  checks  to  the  same  class  of  opera- 
tors, ranging  from  $110,000,000  to  $120,000,000  daily  (on  the 
5th  of  October  the  amount  was  $112,800,000).  Taking  the  call 
loans  and  the  certified  checks  together,  the  somewhat  startling 
fact  is  developed,  that  the  New  York  National  banks  furnish 
$70,000,000  of  capital  and  $112,000,000  of  credit  for  speculation, 
or  one  hundred  and  eighty-two  million  of  dollars."  We  have  no 
later  returns  from  which  we  can  correctly  ascertain  the  amount 
loaned  by  the  banks  to  the  speculators,  so  we  must  content  our- 
selves with  these.  But  we  have  no  reason  to  suppose  that  the 
banks  have  been  less  indulgent  to  the  speculators  since  this  report 
was  made. 

The  loaning  of  bank  funds  to  speculators  is  not  an  evil  of  re- 
cent date. 

Perhaps  the  most  noted  example  of  reckless  loaning  in  this 
country  was  by  the  Second  United  States  Bank  chartered  by 
Congress  in  1816.  Its  capital  was  $  35,000,000.  The  operations 
of  the  bank  having  become  very  corrupt,  in  1841  a  committee 
was  appointed  by  Congress  to  examine  into  its  affairs.  And  what 
did  they  find?  On  the  21st  of  December,  1840,  loans  were 
made  to  several  incorporated  companies  amounting  to  $  1,211,163, 
including  one  of  $  502,222  to  the  Wilmington  Railroad.  Dis- 
counts to  the  amount  of  $  740,056  had   been   made  with   at   least 


THE    RELATION    OF    BANKS    TO    SPECULATORS.  1 59 

six  months  to    run  ;  and    the   balance  was    loaned   payable  in   one 
year.     Nine  companies  had  discounts  of  over  $  100,000  each.     A 
great   deal    of   suspended   indebtedness   was    discovered.     Fifty-two 
individual  firms  and   companies  were   severally  charged  with    more 
than  $  20,000 ;    twenty-nine    had    debts    exceeding    $  50,000    each, 
and   nine   having    each  a  debt    of    $  100,000.     Six    concerns    were 
charged    with     $  2,314,000.     One    firm    in     Philadelphia,    between 
August,   1835,    and    November,    1837,  received    accommodation    to 
the  extent  of  $4,213,878,  more  than    half  of   which  was  obtained 
in    the    year    1837.      Mr.  Samuel   Jaudon,  when    he    resigned    as 
cashier    of   the    bank,  upon   being   appointed    as   its    foreign  agent, 
was  a  debtor  to  the  extent  of  $  408,389,  and  the  ingenious  reason 
given    by    the  directors    for    giving    him    an    enormous    salary   as 
cashier,  was   on    account    of  his    heavy  indebtedness   to    the  bank. 
A    former    cashier    was    charged   with     $  104,000.       At    the    same 
time,  the   first   assistant    cashier    was    indebted    to  the  bank   in  the 
sum  of  $115,000,  which  was   finally  increased   to    $326,382.     He 
then  graduated  as  assistant  and  was  made   cashier   of   the    institu- 
tion.    If  any  one   would    like    to    know  what   the   two   last-nan:ed 
officers    did  with    their   funds,  it    may    be   answered    that    they  in- 
vested   them    in    the    Camden    and    Woodbury,    Wilmington,    ;;nd 
Grand    Gulf    Railroads,  and    in    the    Dauphin  and  Lycoming  coal 
lands.     When    the   stocks    of  these  various    companies  were    gi^en 
u])  as  worthless,  they  were    transferred    to    the  bank    in  satisfaction 
of  the  indebtedness  of  their  holders.     In   1836    the  amount  loaned 
upon  the  pledge  of  "  fancy  stocks  "  was  nearly  $  20,400,000.      1  he 
same  year  an  advance  was  made  to  A.  G.  Jaudon  to  enable  him 
to  purchase  cotton  which    was    remitted    to    liARiNc,   Hrothkrs  & 
Co.,  of  Liverpool.     "  The  derangement  of  the  currency,"    said  Mr. 
Biddle,    when    explaining    the    effect    of    this    purchase    to     Mr. 


l6o  THE    RELATION    OF    BANKS    TO    SPECULATORS. 

Adams,  "placed  the  staples  of  the  South  entirely  at  the  mercy  of 
the  foreign  purchaser,  who  could  have  dictated  the  terms  of  sale 
to  the  prostrated  planter.  It  was  thought  proper  to  avert  the  evil 
by  employing  a  large  portion  of  the  capital  of  the  bank  in  mak- 
ing advances  on  southern  produce." 

Why  have  banks  assisted  speculators  so  much  ?  First. — As 
deposits  are  generally  made  payable  on  call,  banks  have  believed 
it  to  be  a  wise  policy  to  loan  large  portions  in  this  manner ; 
for,  if  they  are  asked  to  pay  heavy  sums,  they  can  easily  be  ob- 
tained. If  loans  were  made  to  brokers  with  stocks  and  gold  as 
collateral,  the  loans  were  safe,  and  they  could  be  repaid  at  a 
moment's  notice.  The  banks  never  dreamed  that  if  a  great  many 
wanted  to  reahze  quickly,  no  one  could ;  and,  consequently,  that 
such  loans  were  not  more  likely  to  be  paid  than  others. 

Secondly. — By  making  call  loans,  a  greater  portion  of  deposits 
can  be  loaned.  The  banks  do  not  dare  to  loan  all  their  funds 
upon  time,  because  these  institutions  are  liable  to  heavy  demands 
at  any  moment.  In  making  call  loans,  however,  they  can  dis- 
count more  heavily  as  they  can  call  in  such  loans  whenever  they 
desire.     By  this  policy  dividends  are  increased. 

Thirdly. — Speculators  have  offered  higher  rates  for  money.  It 
is  humiliating  to  us  as  a  nation,  that  speculators  have  for  years 
been  able  to  outbid  legitimate  and  healthy  business  for  money. 
Yet,  having  offered  rates  of  interest  which  merchants  could  not 
afford  to  pay,  speculators  have  been  accommodated  and  mer- 
chants left  without  help. 

Fourthly. — Another  reason  impelling  banks  to  make  call  loans 
was  that,  as  they  had  encouraged  deposits  by  offering  interest  at 
three  to  five  per  cent,  on  them,  it  became  necessary  to  loan  these 
deposits  to  avoid  loss.     The    only    chance    to   make   anything  was 


THE    RELATION    OF    BANKS    TO    SPECULATORS.  l6l 

to  loan  immediately  and  at  higher  rates  than  those  paid  to 
depositors.  They  had,  it  is  true,  the  precedent  of  banks  abroad 
for  ofiFering  interest  on  deposits,  though  few  of  them  offer  so  much 
as  do  our  own.  The  banks  have  thus  diverted  a  large  portion  of 
their  resources  to  speculative  purposes.*  Not  all  the  banks  have 
been  guilty  of  this.  The  offenders  are  principally  in  New  York 
City,  and  even  there  many  honorable  exceptions  may  be  found. 

We  have  given  some  of  the  reasons  for  condemning  speculation. 
We  have  seen  that  banks  greatly  assist  speculators  by  loaning  them 
funds  to  carry  on  their  operations.  The  question  arises,  how  can 
banks  be  prevented  from  rendering  this  assistance? 

Prohibit,  by  law,  the  payment  of  interest  on  deposits.  The 
custom  of  paying  interest  on  deposits  has  found  many  defenders 
and  opponents.  It  unquestionably  tends  to  increase  deposits,  but 
the  evils  arising  from  the  improper  use  of  them,  if  interest  be 
paid,  far  outweighs  the  benefits  of  resorting  to  this  method  of 
encouraging  an  increase.  This  remark  has  no  application  to  the 
payment  of  interest  upon  special  deposits — that  is,  thosr  made 
for  a  specified  time,  but  only  to  those  made  daily  and  in  the 
usual  course  of  business.  To  pay  interest  on  these — especially 
to  pay  high  rates — we  believe  to  be  contrary  to  sound  banking. 
After  the  terrible  crisis  of  1857,  the  Clearing- House  Association  of 
the  New  York  City  banks  appointed  a  committee  to  investigate 
into  this  subject.  At  that  time  all  excej)t  six  out  of  forty-six 
banks  composing  the  association  united  in  an  agreement  not  to 
pay  interest  on  deposits.  This  fact  was  stated  by  the  committee 
in  their  report.     The  subject  was  considered  by  them  with  marked 

*  It  is  a.  thing  of  common  occurrence  for  merchants,  m.inufacturcrs,  and  others  who 
denounce  the  action  of  banks  in  loaning  to  speculators,  to  loan  their  own  deposits  to  such 
banks,  in  order  to  get  interest  upon  them.  Thus  their  greed  for  gain  leads  men  to  feed  the 
speculators  whom  they  denounce. 


1 62  THE    RELATION    OF    BANKS    TO    SPECULATORS. 

ability,  and  the  conclusions  at  which  they  arrived  were  summed 
up  near  the  close  of  their  report.  The  practice  of  paying  inter- 
est upon  deposits  they  declared  was,  — 

1.  Inherently  unsound. 

2.  That  it  tends  to  weaken  the  legitimate  commerce  of  the 
country,  and  to  disturb  the  regularity  of  the  business  of  the  city. 

3.  That  no  bank  can  safely  and  profitably  practice  it. 

4.  That  it  tends  to  interfere  with  the  efficiency  and  stability  of 
our  banks,  and  with  the  harmony  of  their  intercourse  with  each 
other. 

5.  That  its  discontinuance  will  not  divert  any  substantial  depos- 
its from  this  city. 

6.  That  the  reasons  for  its  discontinuance  are   daily  increasing. 

7.  That  it  has,  under  like  conditions,  no  fair  precedent  in  older 
countries. 

8.  That,  as  it  exists  here,  it  has  been  unjustly  applied. 

After  sixteen  years  more  of  experience  in  banking,  the  same 
Clearing-House  Association  appointed  another  committee  to  con- 
sider "  What  reforms  are  required  in  the  operations  of  banks  with 
each  other  and  the  public  to  increase  the  security  of  their  busi- 
ness ;  and,  first  and  most  prominent,  they  recommend  that  the 
banks  entirely  discontinue  the  payment  of  interest  upon  deposits, 
whether  directly  or  indirectly." 

With  this  accumulated  experience  before  us,  the  National  Gov- 
ernment ought  not  to  hesitate  in  enactmg  a  law  forbidding  the 
payment  of  interest  upon  deposits.  The  fact  that  a  difl^erent  cus- 
tom prevails  abroad  is  of  no  force  here,  because  our  monetary 
system  is  so  unlike  any  other.  Besides,  the  Bank  of  England,  the 
largest  in  the  world,  has  never  paid  interest  on  deposits.  Let 
such   a  law  be   passed   and  banking  will    become  a  sounder   busi- 


THE    RELATION    OF    BANKS    TO    SPECULATORS.  1 63 

ness,  while  the    country  at    large  will   be    greatly  benefited   by  the 
severe  checks  which  speculation  must  receive.* 

It  will  he  said,  why  interfere  with  the  action  of  the  banks  ? 
Why  not  permit  them  to  act  according  to  their  own  judgment  ? 
The  common  saying  among  bankers  is  :  "  Take  care  of  the  cur- 
rency; make  that  as  secure  as  possible,  but  do  not  interfere  with 
the  business  of  the  banks."  What  is  implied  in  this  saying  ?  It 
is  that  banks  have  the  right  to  manage  their  own  affairs,  and  that 
if  allowed  to  exercise  it,  banking  would  become  a  more  profitable 
business.  This  is  the  reason  why  they  so  loudly  clamor  for  non- 
interference in  their  concerns.t  Profits  are  reduced  thereby. 
Moreover,  many  bankers  are  very  outspoken  in  their  claim  that  it 
is  beyond  the  scope  of  the  government  to  undertake  the  super- 
vision and  direction  of  banks.  To  this  claim  they  add  this  addi- 
tional consideration  that  whenever  the  government  has  undertaken 
the  supervision  and  control  of  them,  no  benefit  has  resulted  there- 
from, either  to  the  banks  or  to  the  public. 

Banks  are  corporations  created  by  the  government,  not  for  the 
good  of  the  corporators  alone,  but  also  for  the  good  of  the  pub- 
lic. Corporations,  in  general,  seem  to  be  quite  innocent  of  this 
truth  now-a-days.  They  have  grown  to  think  that  corporations 
are  wholly  one-sided  affairs,  created  only  for  the  benefit  of  them- 
selves, and  therefore  that  the  government  has  no  right  to  put  any 

*  It  is  evident  that  if  the  banks  are  forbidden  to  pay  interest  on  deposits,  of  course,  the 
country  banks  will  thereafter  retain  all  of  their  own  deposits.  It  is  true  that  it  would  be  neces- 
sary to  keep  small  deposits  with  the  city  banks  in  order  to  have  the  drafts  upon  the  city 
banks  paid  upon  presentment.  Hut  all  the  deposits  of  country  banks,  beyond  the  quantity  rc- 
fiuired  for  this  purpose,  would  be  retained.  Hence  the  city  banks  would  be  deprived  of  these 
numerous  .ind  perennial  fountains  from  whence  speculators  have  been  fed.  In  1870,  the 
amount  thus  furnished  by  the  country  to  the  city  banks  amounted  to  $  72,272,790.36.  The 
speculators,  therefore,  would  be  so  weakened  from  this  loss  of  blood  that  they  could  not  carry 
on  their  operations  with  the  same  degree  of  energy  as  before. 

f  See  article  in  Banker's  Magazine — Banking  Amcndmcnli — July,   1870. 


164  THE    RELATION    OF    BANKS    TO    SPECULATORS. 

checks  in  the  way  of  their  earning  the  greatest  gains.  The  time 
has  fully  come  when  corporations  must  unlearn  this  error,  and 
remember  that  they  are  endowed  with  corporate  life,  not  for  their 
good  merely,  but  for  that  of  the  public.  It  is  very  absurd 
to  suppose  that  the  government  creates  an  institution  to  prey 
upon  the  public,  and  from  which  it  is  to  derive  no  benefit.  If 
the  government,  by  mistake  or  otherwise,  has  endowed  such  an 
institution  with  a  legal  existence,  it  should  be  removed  as  speedily 
as  possible.  A  corporation  which  is  not  beneficial  to  the  public 
as  well  as  to  the  corporators,  has  no  place  in  a  well-organized 
society.  Is  it  not  true  that  corporations  gain  more  from  the  pub- 
lic than  the  public  from  them  ?  Indeed,  would  one  ever  be 
created  if  this  were  not  the  case  ?  And  if  such  be  the  case,  may 
it  not  be  doubted  whether  the  government  should  ever  create  a 
corporation  ?  Surely,  if  such  institutions  are  authorized,  the 
government  ought  to  watch  over  them  with  a  jealous  care,  lest  the 
public  suffer  too  much,  rather  than  the  corporators  lose  too  much, 
therefrom.  The  banks  must  remember  that  they  are  corporations, 
and  consequently  that  the  government  has  a  right  to  interfere, 
and  that  it  is  the  duty  of  the  government  to  interfere,  whenever 
they  are  not  conducting  their  business  in  harmony  with  the  best 
interests  of  society.  Nothing  can  be  plainer  than  this.  If  banks 
are  making  imprudent  or  unwise  loans,  if  they  are  abusing  in 
any  way  the  laws  of  their  corporate  life,  it  is  the  duty  of  the 
government  to  correct  such  abuses  by  applying  the  most  effica- 
cious remedies. 

We  have  seen  that  banks  loan  a  large  portion  of  their  funds  to 
speculators;  that  banks  injure  the  mercantile  community,  which 
includes  the  productive  class  of  the  country,  by  withdrawing  the 
money  it  needs;    and    that    this  evil    can    be  corrected,  in  part   at 


THE    RELATION    OF    BANKS   TO    SPECULATORS.  165 

least,  by  forbidding  the  banks  from  paying  interest  on  deposits. 
What  is  clearer  than  that  the  government  should  lay  this  re- 
striction upon  them  ? 

The  banks  say,  "Oh!  you  do  this,  and  we  cannot  live.  It  is 
just  what  our  enemies,  the  private  bankers,  wish  to  have  done,  in 
order  to  crush  us  out."  Very  well.  If  you  cannot  live  without 
injuring  the  public  more  than  you  benefit  it,  you  ought  to  be 
crushed  out.  Besides,  you  are  not  obliged  to  exist  at  all.  If  you 
cannot  make  money  enough  without  making  call  loans,  and  by 
paying  interest  on  deposits  in  order  to  get  the  money  to  make 
them,  then  retire  from  corporate  banking,  and  seek  some  other 
occupation.  The  public  can  be  deprived  of  the  benefits  you  con- 
fer upon  it  with  less  loss  to  itself  than  if  you  are  permitted  to 
live,  and  they  be  chased  by  a  pack  of  greedy  speculators.  If  you 
cannot  feed  the  good  fish  without  feeding  the  sharks,  it  is  cer- 
tainly preferable  that  each  should  pick  up  a  living  in  other  ways. 
For  the  producer  knows  that  when  both  are  left  to  procure  their 
own  subsistence,  he  will  succeed  whether  the  speculator  does  or 
not.  The  government  may  wisely  go  further  than  this  in  forbid- 
ding the  payment  of  interest  on  deposits.  It  may  forbid  the 
banks  from  taking  gold  as  collateral  for  loans.  No  one  will  keep 
gold  except  for  speculative  purposes,  and  the  fact  that  one  wishes 
to  use  it  as  a  basis  for  loans  is  evidence  enough  that  he  holds  it 
merely  for  speculation.  The  banks  know  tliis.  Nothing  is  plainer 
than  that  if  such  a  law  were  passed  it  would  diminish  speculation 
in  gold  by  cutting  ofi"  the  sujjply  of  funds  to  pay  for  the  gold 
purchased. 


XIII. 


THE    INFLUENCE    OF    CREDIT    ON    PRICES. 


A  great  deal  has  been  written  concerning  the  influence  of 
credit  on  prices.  Yet  the  subject  is  simple  enough.  Suppose  the 
banks  increase  their  circulation  to  one  thousand  millions  of 
dollars,  promising  to  redeem  it  on  demand  in  gold  ?  Would  this 
enormous  amount  of  promises  have  any  influence  on  prices  ? 
Probably.  Supposing  the  people  had  confidence  that  they  would 
be  surely  paid  according  to  their  tenor,  they  would  have  precisely 
the  same  influence  on  prices  as  a  like  increase  of  gold.  If  the 
addition  of  so  much  gold  would  increase  prices,  so  would  these 
bank  notes  which  are  substituted  for  it.  So  long  as  people  have 
lull  confidence  that  gold  and  bank  notes,  or  other  instruments  of 
credit,  are  really  and  instantly  convertible  into  each  other,  the  in- 
fluence of  each  upon  prices  is  the  same.*  Thus  far  there  is  no 
difficulty  with  the  nature  of  credit. 

At  this  point  we  must  distinguish  between  a  depreciation  in  the 
measure  of  value  and  an  increase  of  prices.  In  the  strict  sense 
of  the  phrase,  as  we  have  seen,  no  such  distinction  can  be  made, 

*"  There  is  scarcely  any  shape  into  which  credit  can  be  cast,  in  which  it  will  not  at  times 
be  called  to  perform  the  functions  of  money,  and  whether  that  shape  be  a  bank  note  or  a 
bill  of  exchange,  or  a  banker's  check,  the  process  is  in  every  essential  particular  the  same,  and 
the  result  is  the  same."     Fullarton  on  the  Reg.  of  Currencies,  p.  29. 


THE    INFLUENCE    OF    CREDIT    ON    PRICES.  167 

but  popularly  there  is  one.  We  are  all  familiar  with  the  fact  that 
the  prices  of  things  were  greatly  enhanced  during  the  late  war, 
measured  or  estimated  in  paper  dollars — that  is,  legal-tender  notes, 
which  were  given  in  exchange.  Yet  prices  remained  nearly  the 
same,  measured  by  the  gold  standard,  for  as  large  a  quantity 
of  wheat  could  be  purchased  for  the  same  amount  of  gold  as  be- 
fore. What,  therefore,  happened  was  not,  popularly  speaking,  an 
increase  of  prices  (suppposing  the  jjrice  of  things  measured  in 
gold  to  remain  the  same),  but  a  depreciation  in  the  measure  of 
value.  The  paper  measure  was  not  equivalent  to  the  metallic 
measure. 

The  fall  and  rise  of  prices  is  governed  directly  or  immediately 
by  the  law  of  supply  or  demand,  though  a  very  vague  and  de- 
fective law.  Then  demand,  in  turn,  is  sharpened  by  the  amount 
of  money  which  the  buyer  may  have  to  purchase  with.  If  he 
have  plenty,  then  he  will  purchase  more ;  if  short,  he  will  pur- 
chase less.  But  if  he  have  credit,  this  is  a  substitute  for  money; 
and  if  it  be  equivalent  to  money,  then  he  buys  just  as  cheaply 
as  though  money  was  paid.  "Credit,  in  short,"  says  Mr.  Mill,* 
"  has  exactly  the  same  purchasing  power  with  money,  and  as 
money  tells  upon  prices,  not  simply  in  pruportion  to  its  amount, 
but  to  its  amount  multiplied  by  the  number  of  times  it  changes 
hands,  so  also  does  credit,  and  credit  transferable  from  hand  to 
hand  is  in  that  proportion  more  potent  than  credit  which  only 
performs  one  purchase." 

Confidence  is  rarely  perfect.     The  merchant  knows  that  custom- 

*  Princ  0/  Pol.  F.con.,  vol.  2,  p.  75,  (Fifth  Lond.  ed.)  There  is  no  contradiction  in  Mill's 
writings  about  credit,  as  Macleod  has  earnestly  labored  to  show.  Princ.  0/  Econ.  Philos.,  pp. 
6i6-6?3.  (2d  ed.)  When  Mill  says  that  credit  is  not  c.npital,  he  means  by  credit  the  power  to 
borrow  money.  The  transfer  of  money  is  not  the  creation,  but  merely  the  tnnsfcr  of  capital. 
The  power  to  buy  goods,  etc..  without  giving  anything  in  exchange,  this  is  capital,  and  Mill 
does  not  deny  it.     He  is  silent  in  respect  to  it. 


l68  THE    INFLUENCE    OF    CREDIT    ON    PRICES. 

ers  are  frequently  failing  in  business.  He  expects  that  among  all 
to  whom  he  sells,  some  will  fail  to  pay.  Hence  in  fixing  a  price 
at  which  he  shall  sell  his  goods,  an  additional  price  is  charged  to 
cover  this  prospective  loss.  In  other  words,  he  becomes  his  own 
insurer  against  loss  arising  from  the  failure  of  customers.  The 
cost  of  this  insurance  is  an  additional  price  to  the  goods  which, 
of  course,  would  not  be  charged  if  immediate  payment  were 
made. 

It  is  true,  therefore,  that  price  depends  immediately  upon  supply 
and  demand  which,  in  turn,  is  very  much  increased  by  the  giving 
of  credit.  Says  Fawcett  :  "  If  it  were  not  for  credit,  the  demand 
for  commodities  would  frequently  be  much  less  than  it  is.  In 
fact,  when  credit  is  freely  given,  the  demand  for  a  commodity 
may  increase  without  any  assignable  limits."* 

,  How  are  sellers  able  to  give  so  much  credit  ?  By  obtaining  it 
from  those  of  whom  they  buy,  and  from  others,  though  principally 
from  banks.  The  latter  furnish  credit  by  exchanging  notes  with 
their  customers.  The  reason  why  the  customer  seeks  to  exchange 
is  because  bank  notes  inspire  a  higher  confidence  than  his  own. 
The  bank  may  be  willing  to  trust  him,  but  others  are  not;  or,  it 
may  be  more  advantageous  to  owe  the  bank  than  the  party  to 
whom  the  notes  of  the  bank  are  paid. 

Let  us  now  begin  at  the  other  end  of  the  chain  of  influences 
acting  on  price.  If  the  banks,  or  the  individuals,  did  not  in  the 
first    place  loan  their  credit,  others  could  not    buy  so  many  goods, 

*  Man.  of  Polit.  Econ.,  p.  387,  (3d  ed.)  Says  Prof.  Price:  "What  raises  prices  universally 
is  buying,  whether  that  buying  be  made  by  the  transfer  of  an  article  of  equivalent  value,  such 
as  coin,  or  whether  the  goods  are  sold  and  delivered  without  payment  being  made  at  the 
time.  The  greater  the  buying,  either  on  trust  or  with  coin,  the  stronger  will  be  the  tendency 
of  the  articles  in  demand  to  rise  in  price.  The  particular  manner  in  which  evidence  is  obtained 
ot  goods  having  been  dehvered  without  payment,  and  security  taken,  by  bill  or  note,  that  this 
deferred  payment  shall  in  due  time  be  effected,  is  utterly  insignificant,  so  far  as  concerns  any 
action  on  prices.  " — Princ.  of  Currency,  p.  168. 


THE    INFLUENCE    OF    CREDIT   ON    PRICES.  169 

hence,  there  would  not  be  so  great  demand  for  them,  and  conse- 
quently, their  price  would  be  less.  Credit  from  whomsoever  de- 
rived, increases  price  I)y  stimulating  and  feeding  demand.  There- 
fore, the  banks  are  not  alone  justly  chargeable  with  the  evils 
springing  out  of  the  credit  system,  according  to  the  opinion  of 
some  writers,  but  only  in  common  with  all  who  give  credit,  and 
in  proportion  to  the  respective  amounts  given  by  banks  and  indi- 
viduals. 


XIV. 

ON  LEGAL  INTERFERENCE  WITH  THE  LOAN  OF 
MONEY,  PAYMENT  OF  LABOR,  AND  CONTRACTS 
OF  CORPORATIONS. 


In  this  chapter  we  shall  consider  the  right  and  expediency  of 
the  State  to  interfere  in  the  making  of  three  classes  of  contracts, 
namely :  Contracts  for  Labor,  Usury  Laws,  and  Contracts  of  Cor- 
porations, leaving  the  question  of  enacting  protective  laws  to  be 
discussed  in  the  chapter  following. 

Why  does  any  one  seek  State  interference  in  these  matters  ?  A 
true  answer  reveals  the  selfishness  and  tyranny  of  mankind. 

Employers  generally  have  wealth,  either  inherited  or  acquired-, 
while  the  laborer's  wealth  is  in  brain  and  limb.  Let  his  body  die 
or  be  impaired  by  accident  or  disease,  and  his  wealth  is  dimin- 
ished or  forever  lost. 

From  the  situation  of  the  parties,  it  is  evident  that  the  employer 
has  the  advantage.  Of  course,  his  wealth  will  not  increase  with- 
out the  co-operation  of  labor;  but  if  he  cannot  employ  it  upon 
his  own  terms,  he  can  wait  till  the  laborer  yields.  Not  so  fortu- 
nate is  the  son  of  toil.  He  must  take  what  he  can  get  or  starve. 
Work    or    starvation    is    the    only    alternative    of    his    life.       The 


ON    LEGAL    INTERFERENCE.  171 

capitalist,  knowing  this,  profits  by  the  fact  in  offering  terms 
of  wages.  He  really  fixes  the  price  of  labor  himself;  the  other 
party  merely  assents  to  the  sum  offered.  This  is  the  true  situa- 
tion of  the  parties  when  it  is  fully  unmasked.  The  law  of  de- 
mand and  supply  has  many  holes  in  it,  and  here  is  a  big  one. 
The  laws  governing  human  action  cannot  be  half  as  clearly  traced 
as  the  laws  of  nature  and  of  God.  The  law  of  demand  and  sup- 
ply, which  is  thought  to  have  such  a  universal  operation  in  the 
field  of  economic  science,  is  only  a  crooked  brook  that  not  infre- 
quently is  absorbed  in  the  sands  of  selfishness,  or  diverted  by 
superior  force.  In  the  older  countries,  especially,  the  capitalist  has 
a  tremendous  advantage,  because  the  quantity  of  labor  is  practi- 
cally unlimited.  There  not  being  work  enough  for  all,  the  em- 
ployer dictates  his  own  terms  ;  even  if  all  had  work,  the  mind  of 
the  employer  might  not  change.  Wealth  would  still  hold  the  key 
to  the  situation. 

Thus  we  come  in  sight  of  the  first  question  touching  contracts 
for  labor — has  the  State  a  right  to  interfere  in  ■  behalf  of  the 
laborer  in  fixing  the  terms  of  the  contract  for  his  services ;  and  if 
the  right  be  admitted,  is  it  expedient  for  the  State  to  exercise  this 
right  ?  Let  us  follow  the  case  of  the  laborer  one  step  farther. 
It  is  not  for  the  interest  of  the  capitalist  to  suffer  labor  to  perish; 
if  he  did,  his  own  profits  would  be  lost.  He  seeks  to  retain  him, 
paying  the  smallest  sum  necessary  for  that  purpose. 

The  beautiful  rule  of  equity  would  divide  profits  differently.  It 
would  give  the  employed  a  reasonable  sum  for  his  work,  and  the 
capitalist  a  like  sum  for  the  use  of  his  capital  and  skill,  and  di- 
vide the  balance,  if  any  remained,  fairly  between  the  two.  This 
is  not  the  way,  however,  that  the  capitalist  generally  looks  at  the 
question.      He  seeks  to  find   out   the   least  for  which    he   can  em- 


172  ON    LEGAL    INTERFERENCE. 

ploy  laborers  and  keep  them  from  starving,  and  retains  the  rest  of 
the  income  flowing  from  his  business  for  himself 

This,  of  course,  is  stating  the  question  in  the  broadest  way,  and 
several  objections  may  be  made  to  this  form  of  statement.  In  the 
first  place,  some  capitahsts  divide  their  profits  equitably  with  their 
workmen.  Splendid  instances  of  this  have  occurred  in  the  history 
of  British  industry.  Various  trials  are  making  in  all  the  more  en- 
lightened countries  to  devise  a  practicable  mode  of  dividing  profits 
between  employer  and  employed.  In  the  second  place,  the  la- 
borer in  this  country  exercises  greater  freedom  in  making  contracts 
than  in  the  old.  This  happens  from  the  smaller  number  of  work- 
men in  proportion  to  the  amount  of  work  to  be  done,  and  from 
the  abundance  of  unoccupied  land  which  he  can  improve  if  he 
fails  to  make  a  satisfactory  agreement  with  his  employer. 

This,  then,  is  the  second  question  raised  by  the  laborer — shall 
not  the  Government  make  laws  fairly  distributing  the  profits  be- 
tween the  two  classes  ?  The  argument  upon  which  he  founds  his 
claim  is  briefly  this,  that  he  has  contributed  the  larger  share  in 
earning  the  profits,  hence  they  ought  fairly  to  be  divided. 

A  similar  foundation  of  facts  hes  beneath  the  usury  law.  "  The 
lender "  so  the  borrower  declares,  "  means  to  oppress  me ;  he  has 
the  same  advantage  over  me  that  the  employer  has  over  the  la- 
borer." The  lender,  for  example,  exacts  ten  per  cent,  for  the  use 
of  his  money,  and  will  not  loan  it  for  less.  Having  ample  means 
to  supply  his  wants,  even  if  a  part  of  his  property  is  not  earning 
interest,  he  can  suffer  a  portion  of  it  to  lie  idle  for  the  purpose  of 
bringing  the  borrower  to  terms.  He  watches  the  borrower,  pries 
into  his  business,  and  finds  out  how  much  he  is  making,  and  then 
guesses  how  high  a  rate  of  interest  he  will  pay  for  the  use  of  the 
money.     The    more    profitable    the   business,  the  more  he  will  pay 


ON     LEGAL    INTERFERENCE.  1 73 

rather  than  go  without  it.  The  lender  marks  up  to  the  highest 
notch,  and  believes  that  by  waiting,  the  borrower  will  crawl  up 
to    his   figures. 

The  borrower  says:  "This  advantage  you  ought  not  to  take," 
and  he  calls  upon  the  State  to  prevent  the  lender  from  reaping  it. 
He  seeks  to  get  upon  an  even  plane  with  the  lender  by  force  of 
law.  Like  the  capitalist  in  fixing  the  rate  of  wages,  the  money 
lender  would  fix  the  rate  of  interest  so  high  as  to  reserve  the 
smallest  amount  of  profits  to  the  borrower  accruing  from  the  mon- 
ey loaned.  If  the  borrower  be  a  merchant,  the  lender  says  to 
himself:  "How  much  money  is  A  making  in  his  business,"  and 
according  to  the  conclusion  is  the  rate  of  interest  asked. 

If  a  usury  law  is  passed  to  prevent  the  lender  from  obtaining 
too  great  a  reward,  the  same  principle  may  be  applied  to  prevent 
the  farmer  from  charging  too  much  for  his  potatoes.  As  a  fact, 
however,  there  is  not  much  danger  of  lenders  generally  charging 
excessively  high  rates  of  interest.  This  is  especially  true  of  banks. 
They  keep  within  bounds.  During  the  panic  of  1873,  when  money 
commanded  enormous  prices,  banks  supplied  their  customers,  so 
far  as  they  supplieil  them  at  all,  at  the  old  rates.  Individuals  are 
disposed  to  charge  higher  rates  than  banking  institutions.  The 
reason  is,  banks  are  loaning  the  money  of  other  people,  and  are 
more  merciful  than  individuals  when  lending  their  own.  This  is 
especially  true  of  savings  lianks.  They  consider  what  a  man  can 
afford  to  pay.  But  if  a  usury  law  is  passed  to  prevent  banks  from 
taking  advantages,  logically  it  should  cover  all  cases.  All  men 
who  are  taking  advantage  of  others  by  selling  at  too  profitable 
rates,  must  have  the  law  a|)plicd  to  them. 

From  this  rapid  survey  of  the  motives  leading  men  to  seek  the 
interference  of    (lovernmenl,  it  will    be    seen    that    the  reason  is  to 


174  ON    LEGAL    INTERFERENCE. 

help  one  class  in.  or  to  prevent  one  class  from,  getting  an  advantage 
over  another.  It  is  to  enable  one  or  more  persons  in  obtaining 
an  advantage  over  the  rest,  or  in  neutralizing  an  advantage 
already  possessed. 

Even  Government  itself,  in  our  opinion,  owes  its  origin  to  this 
very  desire  of  one  man,  or  a  set  of  men,  to  obtain  an  advantage 
over  others.  In  the  beginning,  one  or  a  few  ruled  the  rest 
by  virtue  of  superior  force  or  wisdom,  as  they  rule  now.  If  it 
were  not  to  obtain  an  advantage  in  accumulating  property,  it  was 
to  gratify  the  desire  for  governing,  to  have  ideas  and  opinions 
triumph.  We  do  not  believe  that  Government  was  founded  in 
acquiescence  or  agreement ;  a  pure  democracy  is  the  consummate 
flower  of  civilization.  The  lesson  taught  by  history  is  that  the 
one-man  power  existed  in  the  beginning ;  the  right  of  the  people 
to  rule  and  choose  their  own  sovereigns  is  a  principle  issuing 
from  a  long  and  bitter  warfare.  This  usurpation,  in  the  first  in- 
stance, was  to  get  some  sort  of  an  advantage  by  an  individual  or 
by  a  few,  and  to  retain  it  if  possible.  It  is  only  another  illustra- 
tion of  the  spirit  prevailing  in  all  times  and  countries  of  get- 
ting advantages  whenever  it  is  possible  ;  of  the  strong  ruling  the 
weak.  A  democratic  Government  is  no  exception.  The  nearer 
the  approach  to  a  pure  democracy,  the  more  equal  is  the  liberty 
and  the  power  enjoyed  ;  but  in  the  fairest  Government  that  has 
yet  bloomed  on  the  face  of  the  earth,  a  few  have  led  public  opin- 
ion and  ruled  the  rest,  and  the  mass  have  been  willing  to  follow. 
They  have  realized,  to  some  extent,  their  own  weakness,  and  the 
need  of  rulers.  No  king,  unaided  and  alone,  has  made  and  exe- 
cuted law  for  the  rest.  But  kings  have  identified  the  interests  of 
a  class  with  their  own,  and  so  have  been  able  to  tyrannize  over 
the  greater   number.      The    wider  the   ruling    class,  the    more    dis- 


ON    LEGAL    INTERFERENCE.  1 75 

tributed  is  the  advantage,  yet,  even  in  our  own  beloved  land,  who 
will  deny  that  the  dominant  party  has  always  used  the  machinery 
of  Government  for  personal  ends,  and  will  thus  use  it  till  parties 
are  less  deeply  immersed  in  selfishness  than  they  are  now  ?  This 
is  the  principal  source  of  a  party's  strength,  that  it  can  use  the 
Government  for  the  advantage  of  its  members.  Let  party  service 
become  purely  disinterested,  and  the  zeal  of  most  of  its  members 
would  cool  off  as  suddenly  and  as  greatly  as  their  bodies  would  if 
placed  around  the   north  pole  in  the  dead  of  winter. 

From  this  analysis  of  the  motives  of  people  in  making  agree- 
ments, we  have  seen  that  the  assistance  of  the  State  is  sought  to 
balance  the  situation  of  those  opposed  to  each  other  in  business 
so  that  they  may  be  able  to  contract  on  fair  terms ;  or  else  to 
make  the  advantages  already  possessed  by  any  one  greater  still. 
It  is  either  to  even  up  the  condition  of  mankind,  or  to  make 
those   well-off   better-off 

Having  stated  the  problem  in  the  broadest  manner,  we  shall 
proceed  to  consider  whether  the  Government  has  a  right  to  inter- 
fere in  the  cases  mentioned.  This  involves  a  consideration  of  the 
functions  of  Government.  By  no  shorter  cut  can  we  reach  any 
satisfactory  conclu.sion. 

One  class  of  very  able  thinkers  maintain  that  every  man  is  en- 
titled to  the  fullest  liberty  subject  to  the  enjoyment  of  like  liberty 
by  every  other  hidividual.  Not  till  a  jjcrson  breaks  in  uj)on  the 
liberty  of  another,  has  the  Government  a  right  to  interfere.  This 
class  sometimes  state  their  doctrine  in  a  shorter  way,  namely,  that 
the  cardinal  duty  of  the  State  is  to  administer  justice.  Whether 
right  or  wrong,  they  are  entitled  to  the  merit  ol  stating  the  func- 
tions of  Government  more  ])recisely  than  any  other  class.  They 
have    carved    out    its    functions    exactly    and    logically    in    many 


176  ON     LEGAL    INTERFERENCE. 

minute  particulars.  But  if  those  holding  a  different  view  are 
less  able  to  state  the  exact  functions  of  Government  in  some 
respects,  the  reason  is,  that  ascribing  broader  functions  to 
Government,  it  is  more  difficult,  nay  impossible,  to  draw  any 
hard  and  fast  line  defining  those  functions.*  Yet,  may  not  this 
very  impossibility  to  realize  or  express  the  broader  functions 
of  Government,  indicate  that  the  view  is  deeper  and  nearer  the 
truth  ?  The  truths  most  clearly  seen  are  those  lying  nearest  to  us 
and  which  are  the  most  shallow ;  beneath  the  crust  we  grope  in 
darkness  and  difficulty,  yet  we  know  that  the  sohd  earth  is  there, 
although  we  can  tell  less  about  its  qualities.  There  is  a  way  of 
getting  a  clear  notion  of  a  thing,  as  Comte  got  of  philosophy, 
by  throwing  out  all  difficult  questions  and  maintaining  that  they 
do  not  exist ;  but  all  minds  will  not  be  satisfied  with  solving  ques- 
tions in  this  way.  According  to  our  way  of  thinking,  those  who 
have  obtained  such  limpid  and  simple  views  of  Government  have 
dealt  with  the  question  very  much  as  Comte  treated   philosophy. 

It  may  be  noted  that  those  holding  the  narrow  view  of  Govern- 
ment— which  is  the  one  first  stated — support  it  by  reference  to  the 
origin  of  Government  itself  Such  a  reference  is  wholly  useless, 
unless  it  be  maintained  that  society  is  bound  by  the  original  con- 
ception of  a  Government.  If  society  is  left  free  to  change  its 
Government,  either  in  enlarging  or  narrowing  its  functions,  its 
original  structure  is  not  of  the  slightest  consequence. 

No  society  can  impose  terms  upon  their  successors.  The  past 
has  no  claim  upon  the  future  and  cannot  dictate  to  it.  We  may 
accept  what  others   have    bequeathed,  but  there  is  no  law  compel- 

*  Says  Mr.  Mill  :  "  In  attempring  to  enumerate  the  necessary  functions  cf  Government, 
we  find  them  to  be  considerably  more  multifarious  than  most  people  are  at  first  aware  of,  and 
not  capable  of  being  circumscribed  by  those  very  definite  lines  of  demarcation,  which,  in  the 
inconsiderateness  of  popular  discussion,  it  is  often  attempted  to  draw  around  them." — Frhtc.  oj 
Polit.  Econ.y  vol.  2,  p.   387.  _ 


ON     LEGAL    JNTERFERENXE.  177 

ing  a  legatee  to  accept  a  legacy.  Society  is  progressive  and  needs 
a  progressive  form  of  Government.  That  society  is  of  this  char- 
acter, Spencer  and  the  rest  of  his  class  holding  to  the  narrow 
functions  of  Government,  will  not  deny ;  indeed,  it  figures  more 
prominently  in  their  doctrine  of  Government  than  in  (jurs.  But  if 
mankind  are  growing  better,  they  need  a  better  (iovernment  to 
suit  their  improving  condition.  To  maintain  that  the  same  kind 
of  (iovernment  is  best,  both  for  the  rudest  and  most  enlightened, 
is  ridiculous.  In  Christian  theology  it  has  come  to  be  a  recog- 
nized truth,  that  as  intelligence  increases,  and  things  spiritual  are 
more  clearlv  discerned,  theology  changes  and  improves.  Instead 
of  being  a  perfected  system,  the  profounder  study  of  the  Script- 
ures with  the  new  light  reflected  upon  them  by  modern  scholar- 
ship, theology  is  brought  nearer  to  perfection.  The  analogy  holds 
in  respect  to  Government,  as  mankind  increase  in  intelligence  and 
goodness,  and  become  more  inter-related,  their  conceptions  of 
Goxernmcnt   (  liange  to  suit  their  advanced    < ondition. 

If  this  be  granted,  we  care  not  whether  the  ori^m.il  Govern- 
ment was  founded  upon  the  principle  enunciated  b\  lli-i-;i;i  Kr 
Spencer,  or  upon  some  other,  or  u|)()n  no  prnu  iple  at  all;  the 
sole  (juestion  is,  what  is  the  best  (iovernmcnt  for  mankind  to-day  ? 
It  is  possil)lo  that  Spencer's  princij^lc — mankind  should  be  allowed 
to  exercise  the  fullest  liberty  subject  to  the  exercisi-  of  like  liberty 
by  every  other  individual — is  the  correct  one.  in  enunciating  it, 
though,  Spencer  undoubtedly  thought  it  was  in  harmony  with  a 
principle  lying  still  deeper,  namely,  that  su<  h  a  limit. itinii  of  the 
functions  of  (iovernment  was  best  for  the  good  of  the  iiidnidual. 
Certainly  he  would  not  deny  that  this  w.r,  the  eml  he  liad  in 
view  both  in  prescribing  a  Government  and  in  linding  iIn  limitations; 
hence,   in   delermining  the  functions    of    (Jo\eniment,   wr    must     in- 

'3 


178  ON    LEGAL    INTERFERENCE. 

quire,  what  kind  of  one  is  best  for  us  ?  How  shall  its  powers 
be  limited  so  as  not  to  interfere  with  our  highest  progress  ?  Here 
is  the  true  starting  point  whence  all  inquirers  set  out. 

Nor  will  it  be  much  questioned  that  the  highest  good  of  each 
individual  is  in  harmony  with  the  highest  good  of  every  other, 
thus  making  no  difference,  when  looking  after  the  best  Govern- 
ment, whether  we  fix  our  eyes  upon  the  good  of  one  or  the  good 
of  all.     We  need  spend  no  time,  then,  over  this  point. 

A  Government  having  for  its  end  the  highest  good  of  its  sub- 
jects cannot  be  stationary  in  its  scope,  it  must  change.  For,  as 
our  ideas  of  good  approach  nearer  to  the  absolute  and  perfect 
truth,  Government  must  change  to  correspond  with  them.  Suppose 
the  only  good  thought  of  in  the  beginning  was  material  and  low, 
Government  evidently  must  correspond  with  it ;  as  the  conception 
of  good  grows  and  blossoms  fair  and  beautiful,  a  corresponding 
change  is  wrought  in  the  nature  and  province  of  Government. 
The  symbol  of  man  himself,  and  yet  an  instrument  to  make  him 
better,  it  must  ever  change  to  promote  his  good.  No  conception 
of  a  definite  Government  for  all  time  is  possible  by  reason  of  the 
incessant  changes  of  human  life  ;  nor  is  a  fixed  Government  to  be 
desired. 

As  a  general  rule.  Government  promotes  the  good  of  those  far- 
thest advanced  least ;  this  is  easily  enough  seen.  All  laws  are  a 
succession  of  compromises  between  the  wants  of  the  better  class 
and  other  classes  not  so  good.  Laws  really  represent  the  complete 
wishes  of  no  class,  being  more  severe  perhaps  than  one  class  de- 
sires, and  not  severe  enough  for  another.  This  is  especially  true 
of  penal  laws,  nevertheless  all  are  more  beneficent  in  their  opera- 
tion upon  one  class  than  upon  another.  Laws  operating  to  the 
equal  advantage    of  every  member   of  society  are   scarce.     Still,  if 


ON    LEGAL    IXTERFERENCE.  1 79 

a  law  does  not  always  reJdect  the  most  advanced  sentiment  of  so- 
ciety it  is  an  approximation  to  it,  and  by  and  by  becomes  the  sen- 
timent of  many,  affording  some  degree  of  protection.  So  the  doc- 
trine that  law  has  an  educating  and  upHfting  power,  if  actually 
containing  more  truth  than  some  believe,  is  not  wholly  false ;  al- 
though the  danger  of  the  non -enforcement  of  such  laws,  even  if 
enacted,  is  too  great  to  warrant  their  enactment  upon  this  ground. 
The  evil  growing  out  of  a  law  wliich  cannot  be  enforced,  because 
opposed  to  the  sentiment  and  force  necessary  to  execute  it,  is 
greater  than  its  educating  power.  The  law  is  for  the  law-breaker, 
not  the  keeper  of  it ;  hence  it  must  be  a  law  that  can  be  enforced. 
Law  for  those  who  are  always  willing  to  keep  them  are  not  laws, 
only  rules. 

As  the  civilization  of  society  increases,  each  member  is  more 
closely  inter-related  to  every  other  member,  affects  him  more,  and 
so  the  functions  of  Government  must  widen.  Prof.  Huxlev  has 
stated  this  truth  in  an  admirable  way.  "The  higher  the  state  of 
civilization,  the  more  completely  do  the  actions  of  one  member  of 
the  social  body  influence  all  the  rest,  and  the  less  i)ossible  is  it 
for  any  one  man  to  do  a  wrong  thing  without  interfering,  more 
or  less,  with  the  freedom  of  all  his  fellow-citizens."  Consecjuently, 
if  the  functions  of  (lovernment  were  pared  down  to  self-protection 
merely,  yet  as  the  actions  of  men  alfect  each  other  more  and 
nujre,  the  sphere  of  (iovernment  must  continually  widen  in  order 
to  furnish  that  self-protection  which  even  Spencer  achnits  (iovern- 
ment is  bound  to  furnish. 

Spencer  and  those  holding  similar  views  of  Government  advo- 
cate the  largest  measure  of  liberty  lor  all,  bet  ause  they  believe 
that  lumian  improvement  is  most  rapid  under  that  < onditicjn. 
They   will   not  deny  that  man  should  aim  to  reach  the  highest  end 


ISO  ON    LEGAL    INTERFERENCE. 

known  to  himself,  and  that  (lOvernment,  so  far  as  possible,  ought 
to  be  used  to  bear  him  upward  toward  that  end.  In  fact,  they 
cannot  deny  these  statements  withcjut  involving  themselves  in  con- 
tradiction. For,  the  very  reason  why  they  have  set  up  the  lib- 
erty-theory is  because  man  will  develop  most  rapidly  under  it. 
Perhaps  it  is  not  correct  to  say  that  (jovernment  is  a  reformatory 
or  remedial  institution,  yet  it  is,  and  there  is  no  disputing  the  fact. 
The  end  of  all  wholesome  laws  is  to  improve  society  by  punishing 
crime  and  restrainin'g  wrong-doing.  All  punishment  is  aimed  at 
both  things — to  render  justice  and  prevent  the  commission  of 
crime.  Is  it  true  that  man  will  flourish  best  in  the  exercise  of 
the  highest  liberty  ?  This  is  the  belief  of  those  who  narrow  down 
the  functions  of  Government.  Are  plants  the  most  beautiful  in  a 
state  of  nature  ?  Are  they  not  made  fairer  by  cultivation  ?  Do 
not  careful  watchmg,  pruning,  and  watering  of  them,  increase  their 
beauty  of  form  and  color  ?  Who  questions  that  men  improve 
more  rapidly  under  a  state  of  cultivation  ?  ^Vhat  {)rogress  would 
the  student  make  in  his  earlier  years  if  left  to  the  exercise  of  the 
largest  liberty  in  the  choice  of  his  studies  and  in  the  mode  of 
pursuing  them  ?  Who  ever  heard  of  a  savage  blossoming  in 
beauty  unto  perfection  like  the  most  perfect  flower  ?  The  finest 
intellect,  art,  morality,  religion,  is  the  product  of  the  greatest  care, 
toil,  and  restraint  in  living.  The  State  can  do  something  in  the 
way  of  instructing  anil  directing  men  ;  how  much  it  can  do  is  a 
question.  Umloubtedly  it  cannot  do  half  as  much  as  the  popular 
mind  believes  it  can.  The  opinions  of  many  are  altogether  too 
sanguine  concerning  the  educating  and  restraining  power  of  the 
State.  The  State  has  often  undertaken  to  do  things  which  it 
ought  to  have  left  alone.  It  is  not  true,  however,  that  the  State 
contains  no  civilizing  power,  or  that  men  will  develop  most  rapid- 


ON     LEGAL    INTERFERENCE. 


ly  when  left  to  themselves,  or  with  other  helps  than  the  State, 
which  thev  may  call  into  use.  A  great  many  do  not  want  to  help 
themselves  and  would  not  improve  their  condition  if  they  could. 
Firmly  as  we  believe  in  the  ultimate  perfectibility  of  man,  he  is 
now  fearfully  depraved  and  liis  aspirations  to  improve  are  so  fee- 
ble as  to  be  easily  overpowered  by  his  e\il  genius  of  a  will. 
Spencer  does  not  consider  sufiiciently  the  evil  tendencies  of  man 
and  the  need  of  his  coercion  and  severe  discipline.  He  is  all  the 
better  for  every  proper  restraint  and  check.  He  is  like  a  garden 
vegetable  that  will  spend  all  its  force  in  extending  its  vines  or 
branches,  and  bearing  no  fruit,  unless  it  be  clipped  in  its  lux- 
uriant growth.  We  admit  that  a  great  many  State  checks  have 
dwarfed  rather  than  developed  tlic  ])o\vers  of  man.,  but  not  always. 
Spencer  has  illustrated  the  first  fact  in  a  most  brilliant  manner, 
and  by  so  doing  has  popularized  a  theory  which  we  believe  to  be 
unsound  and  pernicious  to  society.  Government  has  done  its  good 
things  as  well  as  its  evil  ones,  and  the  former  ought  not  be  for- 
gotten in  the  condemnation  of  the  latter.  Spencer  has  proved  be- 
yond a  question  that  the  Government  is  continually  attempting  to 
do  what  it  cannot  do,  or  can  only  do  in.  a  most  feeble  way.  It 
were  much  better  for  both  Government  and  people  that  it  had 
never  undertaken  many  things  it  has.  This  is  the  strongest  side  of 
Spencer's  teachings,  the  showing  up  of  the  numerous  failures  of 
Government    to  essay  the  impossible  and  the  impracticable. 

We  have  previously  observed  that  all  people  are  living  for  the 
highest  good.  This  is  true  in  a  general  sense.  It  is  of  no  cor- 
seciuence  in  what  phraseology  this  idea  is  clothed,  whether  it  be 
sim]:)ly  the  highest,  or  the  highest  end,  or  the  highest  good,  or  the 
greatest  happiness,  or  in  some  other  clothing.  The  sole  concep- 
tion   is    that    every  person    has    s(jme    supreme    purpose  in   life,    al- 


l82  ON    LEGAL  INTERFERENCE. 

though  that  purpose  may  be  as  different  with  individuals  as  they 
are  unhke  in  character.  The  highest  end  of  one  may  be  in  serving 
God,  that  of  another  in  getting  drunk ;  but  that  each  has  a  su- 
preme end  in  view  will  not  be   denied. 

Now,  we  maintain  that  the  end  of  Government  ought  to  be 
what  it  jjractically  is  in  many  cases,  to  assist  society  in  attaining 
its  highest  end.  Everything  Government  can  do  in  that  direction 
is  within  its  province;    by  this  end  are  its  powers  limited. 

This  object  of  Government  has  the  merit  of  simplicity  and  com- 
prehensiveness. It  is  sanctioned  by  experience  and  by  great 
names,-  though  perhaps  no  one  has  expressed  the  idea  in  a  nobler 
and  briefer  way  than  Locke,  who  declared,  "That  the  end  of 
Government  is  the  good  of  mankind." 

If  this  view  be  correct,  the  functions  of  Government  will  change 
with  the  growing  conceptions  of  the  highest  end  of  living.  There 
can  be  no  permanent  sphere  for  it,  because  of  the  mcessant 
changes  going  on  in  society.  If  mankind  made  no  progress  and 
suffered  no  decline,  then  it  would  be  easy  enough  to  mark  out 
the  track  for  Government  to  pursue,  and  give  it  permanent 
bounds.  But  we  are  progressing.  Through  blood  and  tears  man 
is  looking  up  and  struggling  to  reach  a  better  state.  The  weeds 
of  misery  grow  more  luxuriantly  than  the  good  and  hide  its  fair- 
est flowers;  nevertheless  the  good  also  grows  and  one  day  will 
bloom  in  perfect  beauty.  No  impartial  reader  of  history  can  fail 
to  see  that  the  world  is  overcoming  evil  and  attaining  to  higher 
notions  of  the  true  end  of  life.  With  this  advancement,  a  strange 
and  direful  confusion  would  be  wrought  were  Government  to  con- 
tinue in  a  narrow,  worn-out  track. 

It    does    not   follow,    in    the    spreading   of   Government    over   a 
broader    field,    that    legal    penalties    will    increase    in    number   and 


ON    LEGAL    INTERFERENCE.  183 

heaviness.  Quite  the  contrary.  They  will  be  fewer  and  lighter 
with  better  living.  Only  murder  is  punished  with  death  in  this 
country  and  Great  Britain,  yet  in  Coleridge's  time  the  forg- 
ing of  a  frank  upon  a  letter  was  punished  in  this  manner.  Laws 
increase  in  number  with  the  progress  of  civilization,  but  they  ap- 
proximate more  and  more  toward  rules  for  the  conduct  of  the  in- 
dividual. 

We  imagine  that  in  a  perfect  moral  Government,  there  will  be 
only  rules  governing  the  intercourse  of  its  members,  without  any 
penalties  whatever,  for  they  would  be  unnecessary ;  but  rules  will 
not  be  less  numerous  because  there  are  none  to  break  them. 
Rules  are  needed  for  our  guidance  even  if  there  be  no  disposition 
to  set  them  aside. 

In  the  establishment  and  maintenance  of  Government  for  this 
object,  the  good  of  man,  the  believer  in  its  divine  origin  and  the 
scouter  of  this  doctrine  can  agree.  For  the  conception  of  the 
part  which  Government  should  play  in  reaching  the  highest,  is  the 
conception  of  a  majority  or  of  a  smaller  number  of  those  living 
under  it.  We  have  adverted  to  the  manner  in  which  Govern- 
ment, in  our  opinion,  sprang  into  being.  Practically,  every  Gov- 
ernment is  that  of  the  few,  one  man  by-  virtue  of  greater  force, 
or  surpassing  ability,  or  rascality,  may  govern,  but  after  all,  more 
than  one  alone  must  govern  any  people.  He  must  have  friends 
to  support  him,  else  his  Government  will  inevitably  be  ov.ertumed. 
Even  the  most  despotic  Government  has  several  rulers.  Control 
obtained  of  the  army  by  Napoleon,  who  united  their  interests  with 
his  own,  enabled  him  to  plant  himself  on  the  throne  of  France. 
Be  a  Government  ever  so  democratic  a  few  leaders  rule.  There 
may  be  more  of  them  at  one  time  than  at  another,  nevertheless  . 
a    few    do    the    thinking    and    controlling    for   society.     Only    now 


184  ON     LEGAL   .INTERFERENCE. 

and  then  is  one  found  who  thinks ;  fewer  act.  Those  who  both 
think  and  act  have  always  controlled  society,  and  they  always  will. 
The  functions  of  Government  are  not  always  those  which  B  and 
C  would  set  up,  but  are  those  set  up  by  the  leaders  of  society. 
If  the  greatest  hberty  be  allowed,  this  is  thought  to  be  conducive 
to  the  best  interests  of  all ;  if  the  least  liberty  is  tolerated,  the  rea- 
son is  the  same.  Hence  the  functions  of  (rovernnient  may  be  few 
or  man)  ;  the  end  of  it  may  be  very  low  or  very  exalted.  It  may 
permit  the  vilest  practices,  or  it  may  prevent  all  such.  In  either 
case,  the  believer  in  a  divine  order  would  see  that  so  far  as 
Government  went,  it  was  an  approximation  to  the  Government  of 
God,  which  is  one  day  to  prevail  (according  to  his  belief),  while 
another  class  would  only  see  that  the  idea  of  God  or  a  divine  order 
was  absurd.  The  former  class  might  mourn  over  the  rules  of 
society  because  they  contained  such  faint  glimmerings  of  the  highest 
end  of  man  and  of  the  best  Government  for  him,  yet  he  would 
acknowledge  that  the  rulers  saw  a  real  glimmer  of  these  things, 
however  faint. 

Let  us  not  leave  this  point  quite  yet.  The  believer  in  the 
Divine  affirms  that  a  time  is  coming  when  all  will  be  perfect, 
obeying  a  perfect  moral  law,  which  God  will  give.  The  seer 
looks  upon  the  present  Government  as  a  shadow  and  an  indica- 
tion of  the  perfect  one  to  come.  So  far  as  Government  goes,  it 
is  a  revelation  of  God  to  its  makers  and  upholders,  the  unfolding 
of  the  Divine  idea,  either  consciously  or  unconsciously  to  them- 
selves. The  seer  beholds  in  the  progress  of  mankind  and  in  the 
progress  of  (loverninent  a  glimpse  of  the  perfect  day.  Crude  is 
the  Divine  idea  within,  but  it  is  there,  and  will  not  die  for  it  is 
planted  and  nurtured  by  God. 

The  disbeliever  in  the  supernatural  says :  "  This  is  all  nonsense." 


ON    LEGAL    INTERFERENCE.  I 85 

He  affirms  tliat  (Government  is  a  purely  human  contrivance. 
"  Very  well,"  re])lies  the  other,  "  we  can  live  together,  for  we 
agree  that  both  arc  !i\ing  for  the  highest,  and  that  the  ohjcct  of 
Government  is  to  help  us  on  in  our  way.  We  agree  as  to  whitlu-r 
Government  is  tending,  and  what  its  functions  shall  be;  we  onl\ 
differ  as  to  the  source  whence  the  laws  j)roceed."  The  one 
claims  they  are  pure  human  e\])edients  ;  the  other,  the  expression, 
though   im])erfect,  of  the    Divine  will. 

Thus  it  is  seen  that  as  all  live  for  the  same  absolute  end,  though 
not  for  the  same  relative  one,  the  functions  of  Government  main- 
tained by  both  classes  are  the  same,  and  are  determined  by  the 
collective  mind  controlling  society.  Hence,  Government  is  agree- 
able to  all.  Who  is  right  as  to  the  human  or  Divine  ])Ower 
entering  into  Government  and  makhig  it  what  it  is.  the  future 
alone  can  reveal.  If  the  Christian's  belief  is  right,  he  will  expect 
to  see  Government  growing  more  and  more  into  the  likeness  of 
the  eternal  Government  of  Goo,  till  the  human  contrivance  is 
absorbed  and  lost  in  the  splendor  of  the  other.  If  he  is  wrong, 
then  he  must  confess  that  Government  is  j)urely  a  human  device. 

Having  shown  what,'  in  our  ()])inion,  is  the  true  end  of  Govern- 
ment, it  remains  for  us  to  answer. the  questions  announced  in  the 
beginning.  Whether  Government  shall  interfere  in  any  of  the  cases 
mentioned,  depends  upon  the  eltecl  ot  such  interference  u|ion 
society.  We  have  shown  th;it  the  reason  why  (Government  inter- 
ference is  sought  in  any  case  is  to  get,  or  to  |)revent,  an  achan- 
tage  of  one  person  or  more  over  others.  In  our  opinion,  (io\ern- 
ment  ought  to  assist  no  class  in  obtaining  an  advantage  over 
another,  whether  the  class  be  living  in  the  same  country  or  else- 
where. Government  must  ]treser\e  e(|uality,  and  not  make  in- 
equalities greater.     'I'his  is  clear  enough.      But    how  far  it  shall  go 


l86  ON     LEGAL    INTERFERENCE. 

in  the  way  of  leveling  the  inequahties  now  existing;  how  far  in 
the  way  of  preventing  advantages  from  being  taken,  is  a  question 
of  expediency.  We  do  not  question  the  right  of  the  Government 
to  go  very  far  in  tliis  direction.  We  do  not  believe  that  Govern- 
ment is  to  exist  in  a  land  of  darkness  and  in  the  shadow  of  death, 
to  see  one  class  crush  down  another  by  monopoly  and  oppression, 
and  put  forth  no  power  to  save  the  wronged  and  the  weak. 
Such  destruction  of  the  interests  of  a  class  is  the  funeral  of  the 
nation  in  more  senses  than  one.  And  the  nation  has  a  right,  if 
it  thinks  best,  to  stop  these  things.  This,  of  course,  is  predicated 
upon  the  idea  that  it  has  the  ability  to  prevent  undue  advantages 
if  it  pleases.     If  it  cannot,  that  is  the  end  of  the  matter. 

Government  has  certainly  gone  the  whole  length  for  which  we 
contend.  What  is  the  object  of  a  usury  law  save  to  prevent 
one  class  from  taking  advantage  of  another  ?  The  money  lender 
oppresses  the  borrower  in  exacting  excessively  high  rates  of  inter- 
est. The  law  is  aimed  to  prevent  this.  But  the  principle  involved 
in  the  law  by  which  Government  interferes  to  prevent  the  taking 
of  an  undue  advantage  in  the  loan  of  money,  applies  with  equal 
force  to  every  thing  else  which  men  buy,  sell,  and  use. 

Some  claim  that  Government  has  the  right  to  step  in  and  regu- 
late the  charge  for  the  use  of  money  because  it  is  the  creation  of 
Government;  but  this  claim  is  thinner  than  gossamer.  Govern- 
ment is  not  the  creator  of  value.  That  depends  upon  the  desire 
for  a  thing  and  the  difficulty  of  attaining  it.  Value  is  purely 
within  human  control.  Is  not  the  five-dollar  gold-piece  worth 
just  as  much  in  an  uncoined  as  in  a  coined  state  ?  Its  value  is 
dependent  upon  its  weight  and  purity,  and  not  upon  the  work  of 
the  Government.  Remove  every  trace  of  the  Governmental  super- 
scription, re-melt  a  gold   coin,   and   the    shapeless   piece  of  yellow 


ON    LEGAL    INTERFERENCE.  187 

metal  will  be  worth  as  much  as  before,  'i'liis  proves  that  Govern- 
ment exercises  no  peculiar  power  or  charm  over  money;  hence,  it 
has  no  right  by  virtue  of  anything  it  does  to  money  to  say  how 
much  shall  be  paid  for  the  use  thereof  There  is  no  mysterious 
property  clinging  to  money.  The  sole  difference  between  money 
and  other  things  is  that  the  former,  generally,  has  a  wider  purchas- 
ing power.  We  liave  tried  to  prove  that  Ciovernment  has  a  right 
of  determining  how  much  shall  be  paid  for  the  use  of  money,  but 
solely  upon  the  ground  of  preventing  one  citizen  from  taking  an 
unjust  advantage  of  another. 

Whether  Government  should  exercise  this  right  dei>ends  upon 
two  questions :  first,  whether  the  advantage  be  so  great  as  to  call 
for  Government  interference;  secondly,  whether  it  has  the  power 
to  interfere  effectively.  Whatever  the  past  may  show,  we  believe 
that  the  oppression  now  is  not  great  enough  to  warrant  interference 
on  the  part  of  the  State;  and  if  we  admitted  that  it  was,  it  is 
clear  as  crystal  that  Government  cannot  interfere  effectively  to 
prevent  advantages  from  being  taken.  This  has  been  proved  over 
and  over  again.  There  is  not  a  usury  law  in  existence,  in  any 
State  of  the  Union,  to-day,  that  is  anything  but  a  dead  letter, 
buried  out  of  sight  and  almost  out  of  memory.  So  nuu  ii  for  a 
usury  law. 

The  two  i|uestions  concerning  the  payment  ot  lal)()r  nia\  be 
answered  together.  Government  has  a  ])erfect  right  to  interfere, 
upon  the  grounds  assumed  in  enacting  a  usur\  law,  to  |)re\ent 
the  taking  of  an  improper  advantage.  Whenever  the  advantages 
between  capitalist  and  laborers  become  too  great  on  the  one  side 
or  on  the  other,  Government  may  interfere  to  prevent  tlieir  occur- 
rence. If  the  capitalist  scjueezes  the  laborer  too  hard,  or  divides 
too    small    a    jiortion  of   the    profits,  or    the    laborer    demands    too 


l88  ON    LEGAL    INTERFERENCE. 

much  pay,  Government  has  the  right,  according  to  the  foregoing 
reasoning,  of  determining  wliat  the  one  shall  pay  and  the  other 
receive.  As  for  the  need,  or  jjracticaijility  of  any  sucli  interfer- 
ence on  the  part  of  the  State,  there  is  none.  Both  adjust  their 
differences  more  easily  than  the  State  could  for  them;  indeed,  it 
would    cut    a    sorry  figure    if    attempting    to    make    an    adjustment. 

We  come  now  to  the  last  class  of  contracts,  those  of  corpora- 
tions. These  are  creatures  of  the  State,  they  have  their  birth  and 
existence  by  the  favor  of  the  State,  yet  the  longer  they  live,  the 
more  do  they  forget  their  parentage  and  dependence.  I'hey  seem 
to  think,  after  a  time,  that  they  are  very  much  like  other  folks, 
entitled  to  all  the  rights  they  have  and  many  besides.  The  peo- 
ple must  not  forget  the  true  origin  and  character  of  corporations. 
With  their  gigantic  growth  in  this  country,  with  their  enormous 
aggregation  of  wealth,  they  deserve  the  most  careful  watching.  For 
the  most  superficial  glance  at  their  working  and  aims  shows  that 
they  propose  to  ask  a  great  deal  more  of  the  State  in  the  future, 
and  to  abuse  the  mother  which  gave  them  being.  Their  creation 
was  justified  on  the  ground  that  they  would  prove  beneficial  to 
the  community,  but  we  fear  of  their  becoming  its  curse. 

It  must  not  be  forgotten  that  corporations  are  creatures  of  the 
State  and  subject  to  its  control.  I'here  is  no  analogy  between 
them  and  individuals.  We  have  shown  how  the  State  should 
govern  its  members,  for  the  good  of  all.  Corporations  must  be 
governed  in  the  same  manner.  So  long  as  they  are  conducted 
for  the  best  interest  of  all,  they  should  be  let  alone.  When  con- 
ducted otherwise,  the  State  must  not  hesitate  to  interfere  and  pre- 
scribe such  checks  as  are  called  for  by  the  good  of  society,  and 
see  that  they  are  enforced.  The  State  must  not  be  beguiled  by 
the  claims  and    arrogance  of  her   own    children,  who    are    growing 


ON    LEGAL    IXTKRFKRENCE.  I 89 

bolder  as  they  increase  in  wealth  and  ])Ower.  For  there  is  dan- 
ger, unless  the  State  be  watchful  and  keeps  them  in  proper 
restraint,  that  they  will  become  more  i)owerful  than  the  State 
itself. 


XV. 


THE     ADVANTAGES     OF     EXCHANGE, 


Many  still  hug  the  delusion  that  in  every  exchange  one  party 
or  the  other  must  be  the  loser.  They  cannot  beheve  that  ex- 
changes may  be  beneficial  to  all  concerned.  Yet  a  slight  con- 
sideration of  the  subject  ought  to  convince  them  of  their  error.  If 
I  exchange  a  horse  for  a  house,  it  is  because  the  latter  is  worth 
more  to  me  than  the  horse,  else  why  would  I  m.ake  the  exchange  ? 
And  why  would  the  other  party  exchange  if  he  were  not  to  be  a 
gainer  by  the  tran.saction  ?  Of  course,  in  this  statement,  it  is  im- 
plied that  both  parties  have  perfect  freedom  to  do  as  they  like. 
If  they  are  compelled  to  make  exchanges,  that  is  another  thing. 
But  if  a  person  is  compelled  to  pay  a  dollar  for  a  loaf  of  bread  ' 
or  starve,  although  by  waiting  a  little  time  he  could  get  it  for 
one-tAventieth  of  the  sum,  the  case  is  not  changed.  One  may  pay 
a  dollar  for  a  loaf  in  order  to  keep  from  starving,  a  most  exorbi- 
tant price  perhaps,  yet  the  bread  is  worth  more  than  the  dollar, 
else  it  would  not  be  given. 

We  must  not  leave  out  of  sight  the  fact  that  mankind  are  con- 
tinually taking  advantage  of  the  situation  of  things,  thus  reducing 
the  benefits  of  exchange  to  one  party  and  increasing  them  to  the 
other.     As    a    general  rule    each    party  seeks   to    get  the  best    of    a 


THE  ADVANTAGES  OF  EXCHANGE.  191 

bargain  ;  that  is,  to  make  the  most  out  of  it,  leaving  the  least  to  the 
other  party.  Nevertheless,  something  is  always  left  to  both  parties. 
In  every  contract  there  is  a  margin  of  profits  lying  between  the 
parties  desirous  of  making  it.  This  jn-ofit-margin  is  of  greater  or 
less  width.  The  question  with  each  party  is,  how  much  of  that 
margin  can  I  get  ?  If  one  attempts  to  get  all,  the  other  will  not 
enter  into  the  agreement ;  a  portion  must  always  be  left  for  both. 
How  much  can  I  get  and  leave  enough  to  the  other  party  to  in- 
duce him  to  make  and  execute  the  agreement  ?  this  is  the  question 
which  people  generally  put  to  themselves  when  making  contracts. 
Neither  party  can  take  all,  else  the  agreement  will  not  be  consum- 
mated ;  the  profits  must  be  divided  between  both,  and  that  man 
is  regarded  as  the  most  adroit  who,  by  deception  and  covering  up 
of  his  situation,  by  boldness  or  other  means,  succeeds  in  getting 
the  largest  portion  of  that  margin  and  the  execution  of  the  agree- 
ment. Yet  the  truth  remains,  that  in  every  exchange  all  parties 
to  it  are  gainers. 

Freedom  of  exchange  is  affected  in  three  ways ;  by  necessity,  by 
nature,  and  by  law. 

By  necessity,  we  mean  when  men  are  in  such  a  situation  that 
no  ojjtion  is  left  them  in  making  an  exchange,  and  they  are 
obliged  to  pay  whatever  is  asked  for  a  thing.  This  point  we  ha\e 
previously  considered,  yet  we  further  remark,  that  the  taking  ad- 
vantage of  the  situation  of  a  person  to  get  an  unreasonable  price 
for  a  thing  is  to  be  condenmed.  if  a  man  is  starxing,  the  baker 
cannot  morally  ask  any  more  for  his  bread,  although  his  customer 
may  be  abundantly  able  to  pay  an  increased  price  ;  if  there  is  a 
famine,  the  price  of  corn  ought  not  to  \)v  enhanced,  except  so  far 
as  may  be  necessary  to  lead  people  into  the  practice  of  necessary 
economy  ;  if  money  is  scarce,  the  lender  ought  not  to  increase  rates. 


19-  THE    ADVANTAGES    OF    EXCHANGE. 

A  fair  profit  is  all   that  a  man   can   morally  demand   for   his  wares 
or  services  under  the  usual  conditions  of  society. 

Restriction  of  freedom  by  nature  is  when  checks  to  exchange 
arise  from  distance,  and  the  like.  Thus,  wheat  we  will  say  is  worth 
seventy-five  cents  per  bushel  in  New  York,  and  half  that  sum  in 
Chicago.  If  it  costs  thirty  cents  to  transport  a  bushel  of  wheat 
to  New  York,  the  cost  of  transportation  is  a  natural  check  to  the 
exchange  of  the  grain  between  the  two  points.  These  restrictions 
of  nature  often  operate  as  a  protection  to  trade  between  various 
sections.  Thus,  if  iron  be  worth  ten  cents  a  pound  in  New  York, 
and  eight  in  London,  and  it  costs  three  cents  a  pound  to  trans- 
port it  to  New  York,  none  will  come  hither  because  the  cost  of 
transportation  will  operate  as  a  protection  to  the  home  manufac- 
turer. Such  protection,  being  natural,  forms  no  ground  of  just 
complaint. 

The  freedom  of  exchange  is  sometimes  interfered  with  by  law. 
I,aws  are  passed  restricting  it  upon  the  ground  that  it  is  desirable 
to  encourage  production  at  home.  A  manufacturer  says:  "B  ought 
not  to  be  permitted  to  buy  his  clothes  in  London,  because,  though 
the  price  may  be  less,  he  ought  to  be  willing  to  pay  me  more  for 
them  in  order  to  encourage  home  industry  and  make  our  country 
independent  of  England."  And  if  he  has  not  sufficient  regard  for 
the  good  of  his  country  to  buy  at  home,  then  the  manufacturer 
demands  the  enactment  of  a  law  which  shall  virtually  prevent  him 
from  buying  abroad  and  shut  him   u[)  to  the  home  market. 

Many  objections  have  been  made  to  the  enactment  of  protective 
laws;  among  others,  that  the  State  had  no  authority  to  enact 
them,  that  it  was  entirely  beyond  its  power  to  fetter  freedom  of 
trade,  and  that  every  individual  has  the  right  to  buy  where  he 
can  buy  cheapest.     Whether  this  ground    be  valid  depends,  as  Ave 


THE  ADVANTAGES  OF  EXCHANGE.  I93 

have  previously  shown,  upon  the  question,  whether  it  is  for  the 
good  of  the  people  to  enact  such  laws  ?  if  they  are  to  be  benefited, 
no  objection  can  be  raised  to  their  enactment.  Whether  they  are 
to  be  beneficial  or  not  turns  mainly  upon  the  question,  will  there 
be  less  likelihood  of  other  nations  making  a  monopoly  of  their 
products  if  we  do  not  engage  in  their  manufacture  ?  Thus,  if  we 
did  not  manufacture  cotton  goods,  would  England  charge  more 
for  them  than  now?  If  England  sells  everything  to  us  without  ref- 
erence to  production  here,  there  is  nothing  to  the  protectionists' 
claim.  If  English  prices  are  less  than  they  would  have  been  had 
England  remained  the  sole  manufacturer,  we  are  benefited  by  en- 
couraging home  manufactures  by  application  of  law. 

England  undoubtedly  charges  less  for  many  things  because 
we  manufacture  them.  Considering  the  infirmities  of  human  na- 
ture, the  desire  to  take  all  the  advantage  of  each  other  we  can, 
we  believe  that  if  American  industries  had  not  been  protected  by 
law,  England  would  have  proved  just  as  grasping  and  selfish  as 
other  nations,  and  charged  us  more  than  we  are  now  paying  for 
many  of  the  necessities  of  life. 

There  is,  however,  another  side  to  the  picture.  The  principal 
object  of  protective  laws  has  been,  not  to  benefit  the  many,  but 
to  enrich  the  few.  There  is  no  virtue,  therefore,  in  that  system 
which  has  been  fostered  by  legislation.  If  our  manufacturers  have 
increased,  and  we  are  made  independent  of  England,  the  object 
of  the  Government  is  pure  enough;  yet  the  object  of  many  a 
manufacturer  will  not  bear  examination.  Most  of  them  are  like 
the  rest  of  the  world,  seeking  aid  from  the  Government  whenever 
they  can,  in  order  to  make  money. 

What  conclusion,  then,  shall  be  drawn  in  respect  to  protective 
legislation?      We   cannot   reach   such  a  sweeping   conclusion  as  is 

14 


194  THE   ADVANTAGES   OF    EXCHANGE. 

deduced  generally,  that  protective  laws  are  wholly  good  or  wholly 
bad.  In  some  instances,  undeniably,  the  building  up  of  our  in- 
dustries at  home  has  made  us  independent  of  foreign  nations,  and 
we  purchase  at  less  prices  because  we  can  supply  our  wants  from 
a  wider  number  of  producers.  Had  we  pursued  the  opposite 
policy,  we  should  have  been  screwed  down  to  higher  prices.  Pro- 
tection, therefore,  in  some  cases,  has  been  a  positive  benefit.  In 
the  encouragement  of  the  manufacture  of  cotton  and  woolen 
goods  we  believe  that  we  are  the  gainers  by  the  system  adopted. 
Were  we  dependent  upon  foreign  markets,  they  would  charge 
more.  Yet,  we  must  not  leave  out  of  sight  the  fact  that  Eng- 
land, France,  and  Germany,  have  been  competitors  for  our 
trade,  and  as  long  as  we  have  such  a  wide  field  in  which  to  pur- 
chase, there  is  less  danger  of  being  ruled   by  monopolies. 

Protection  may  be  justified  upon  the  ground  of  preventing  a 
monopoly.  Protection  is  not  the  proper  name  to  give  to  such 
legislation,  however.  The  aim  of  it  is  to  prevent  the  commission 
of  a  wrong ;  if  it  does  not  effect  this  purpose,  there  is  no  justifica- 
tion for  it.  England  has  been  able  to  undersell  and  monopolize 
by  screwing  down  the  price  of  labor.  Surely  it  is  just  to  enact  a 
law,  if  possible,  by  which  labor  can  get  its  fair  pay. 

There  is  another  side  to  this  question  and  a  most  important 
one.  We  have  shown  that  people  are  benefited  by  making  ex- 
changes. This  is  just  as  true  of  people  Hving  in  different  countries 
as  in  different  towns.  As  between  people  living  in  the  same  town 
perfect  freedom  of  exchange  is  not  denied.  But  why  should  it  be 
denied  as  between  people  living  in  different  countries  ?  The  answer 
usually  given  is,  that  it  is  desirable  to  make  every  country  inde- 
pendent. This  we  deny.  It  is  not  desirable  to  make  any  country 
independent  except  so  far  as  may  be  necessary  to  place    it    upon 


THE  ADVANTAGES  OF  EXCHANGE.  I95 

an  equality  with  others  in  making  exchanges,  in  other  words,  to 
prevent  the  operation  of  monopohes. 

The  spirit  to  prevent  free  intercourse  between  different  countries 
and  to  create,  if  possible,  an  unnatural  advantage  of  one  nation 
over  another  is  precisely  the  same  spirit  which  individuals  exhibit  in 
their  intercourse  with  each  other.  Each  tries  to  get  the  best  of  the 
bargain.  This  is  because  each  is  selfish.  The  same  principle  crops 
out  in  legislation  between  the  various  States  by  which  each  State 
tries  to  get  advantages  over  the  rest. 

Lastly,  it  is  applied  in  our  intercourse  with  foreign  nations. 
Protection,  therefore,  is  a  radically  selfish  policy.  It  is  a  develop- 
ment of  individual  selfishness  into  national  selfishness.  It  is  the 
same  old  spirit,  springing  from  the  same  source  and  incapable  of 
being  defended.  Of  course,  if  a  nation  pursues  a  selfish  policy  to- 
wards us,  we  must  in  some  way  seek  to  correct  it.  But  we  have 
taken  the  initiative.  We  have  been  selfish  when  other  nations 
have  not.  There  is  no  more  reason  for  conducting  ourselves  differ- 
ently towards  the  people  of  other  nations  than  towards  one  an- 
other, so  long  as  they  manifest  a  right  disposition  with  us.  "Hath 
not  God  made  of  one  blood  all  nations  of  men  ? "  And  shall  we 
bid  eternal  defiance  to  His  law,  and  cultivate  selfishness  instead  of 
benevolence  in  our  conduct  towards  one  another  and  towards 
other  nations  ?  Away  with  such  horrible  thoughts !  let  us  seek  to 
buy  and  sell  at  fair  prices,  and  if  we  are  contented  with  these,  no 
one  will  ever  hear  of  a  protective  policy  adopted  unless  it  be  to 
prevent  a  monopoly. 

There  has  been  a  great  deal  of  discussion  as  to  whether  labor 
is  benefited  by  i)rotective  laws  or  not.  In  England,  the  ques- 
tion has  been  renewed  of  enacting  protective  laws  for  the  benefit 
of  the  workman.      Whether    such    laws    are   beneficial   to   him    or 


196  THE    ADVANTAGES    OF    EXCHANGE. 

not,  depends  upon  the  question  whether  the  products  of  his  labor 
are  all  sold  in  his  own  country  or  not.  If  he  makes  for  a 
foreign  market,  he  wants  no  protective  laws;  if  he  makes  for  a 
home  market,  the  fewer  foreign  products  coming  into  competition 
with  his  labor  the  better  for  him. 

"  Does  protection  protect  ? "  is  another  question  which  has  given 
rise  to  much  dispute.  The  subject  is  befogged  with  a  great  deal 
of  error,  and  yet  it  seems  to  us  that  the  explanation  is  easy 
enough.  If  a  duty  is  laid  upon  a  foreign  article  so  high  that  it 
is  not  imported  and  the  thing  is  made  at  home  and  sold  for  a 
profit,  there  is  no  question  but  that  protection  protects.  This  is 
as  clear  as  noonday. 

It  is  unquestionably  true  that  our  tariff  laws,  to  a  great  extent, 
have  operated  to  shut  out  foreign  goods  and  encourage  home 
manufactures.  But  another  principle  comes  in  to  modify  their 
action.  If  the  iron  manufacturer  sells  his  goods  at  a  higher  price 
because  the  foreign  article  is  shut  out,  although  as  low  perhaps 
as  he  can  afford  to  make  it,  the  parties  buying  the  goods  increase 
the  price  of  their  own  wares.  This  is  illustrated  on  a  grand 
scale  by  the  railroad  companies.  It  costs  them  much  more  to 
equip  their  roads  in  consequence  of  the  advance  in  the  price  of 
iron,  and  so  they  make  up  the  difference  by  increasing  the  price 
of  freights.  Whether  protection  protects  or  not,  depends  upon 
the  question  how  generally  other  persons  besides  those  protected 
increase  the  price  of  their  products.  If  every  one  increases  the 
price  of  his  products  comparatively  to  the  increased  cost  of  iron, 
all  the  benefits  of  protection  are  lost.  All  turns  upon  that.  For 
the  protected  to  get  protection,  he  must  not  only  sell  at  the 
higher  rate,  but  others  must  not  change  their  rates.  If  they  do, 
he  gains  nothing  in  the  end. 


THE    ADVANTAGES    OF    EXCHANGE.  I97 

As  a  fact  in  our  history,  when  a  tariff  has  been  increased  other 
things  have  risen  in  price,  one  after  another,  until  the  rise  be- 
came so  general  that  the  protective  effect  of  the  law  was  gone, 
resort  was  then  had  to  additional  legislation  and  the  tariff  in- 
creased once  more.  Such  is  a  history  of  tariff  legislation  in  this 
country.  It  will  be  seen,  too,  the  fewer  the  things  protected,  the 
more  effectual  the  law.  Prices  will  not  rise  so  rapidly.  But  if 
the  principle  of  protection  be  admitted  at  all,  its  logical  applica- 
tion spreads  over  all  things,  coming  in  competition  with  foreign 
articles.  The  principle  is  so  well  understood  now  that  it  is  useless 
to  attempt  to  get  more  protection;  the  most  that  can  be  hoped  is 
to  keep  the  laws  where  they  are.  The  last  time  it  was  attempted 
to  increase  the  rates,  the  bill  was  defeated  on  this  very  ground, 
that  as  so  many  wanted  protection  the  law  would  be  of  no  avail 
to  any  person. 

The  prime  object  in  establishing  protective  laws  is  to  benefit  a 
class  at  the  expense  of  the  rest.  The  intent  to  benefit  the  State 
is  always  a  secondary  object  in  enacting  them.  The  real  object 
is  to  benefit  a  few.  It  is  class,  not  general  legislation,  and  gene- 
rally has  wrought  most  pernicious  effects  upon  every  country  in- 
dulging in  it.  If  an  English  manufacturer  should  cripple  an  Amer- 
ican manufacturer  by  underselling  him  in  order  to  break  down  his 
business,  in  such  a  case  the  Government  could  very  properly  in- 
terfere, because  it  is  an  attempt  to  take  an  undue  advantage  of 
another.  We  have  proved  that  it  is  the  duty  of  the  Government 
to  prevent  monopohes  and  undue  advantages.  The  State  can  pro- 
tect its  industries,  although  detrimental  for  a  season  to  the  people, 
if  the  object  be  to  build  them  up  and  prevent  other  nations  from 
dictating  the  price  of  the  commodities  protected;  that  is  the  sole 
ground  for  interfering  with  freedom  of  trade.    When  foreigners  seek 


198  THE  ADVANTAGES  OF  EXCHANGE. 

no  such  advantage,  but  sell  for  a  reasonable  price,  and  for  less 
than  we  can  make  and  sell  the  same  product,  it  is  for  our  ad- 
vantage to  buy  of  them,  and  any  interference  with  that  liberty  for 
the  sake  of  benefiting  a  class  is  iniquitous. 

If  it  be  admitted  that  protective  legislation  is  for  the  good  of 
society,  of  course,  it  is  justifiable.  The  history  of  it  shows  that 
such  is  not  the  fact.  It  is  not  the  intent  of  those  who  specially 
seek  for  it,  to  benefit  society  so  much  in  general,  as  themselves 
in  particular.  These  laws  have  not  had  a  good  effect  upon  man- 
kind. They  have  put  off  the  day  of  universal  love  and  peace,  and 
have  glorified  the  narrowness  and  littleness  of  the  past.  With  the 
narrow,  selfish  feeling  growing  out  of  this  policy,  upon  which  in 
fact  it  was  founded,  we  have  no  sympathy.  We  do  not  believe  in 
the  independence  of  nations.  Dependence  upon  one  another  as 
individuals  and  nations  strengthens  the  spirit  of  unity  and  the 
bonds  of  peace.  Protection  weakens  that  spirit  and  encourages 
war,  the  greatest  scourge  of  mankind.  Conceived  in  the  spirit  of 
personal  advantage,  the  history  of  protective  legislation  is  one  of 
the  saddest  which  can  be  read,  for  it  reveals  the  dreadful  selfish- 
ness and  tyranny  of  mankind. 

There  is  one  other  principle  pertaining  to  this  subject,  that  it  is 
not  always  desirable  to  be  independent  of  other  nations  if  we 
could  be.  We  ought  not  to  seek  to  live  within  our  shell  like  a 
turtle.  A  man  who  lives  only  for  himself  is  selfish,  runs  a  miser- 
able life  which  miserably  ends  in  complete  and  absolute  failure. 
This  is  equally  true  of  a  nation.  If  it  seeks  to  live  by  itself,  in- 
dependent of  the  rest  of  the  world,  having  no  commerce,  no  inter- 
course, it  becomes  a  cold,  selfish  nation.     Its  policy  is  too  narrow. 

If  we  can  study  the  design  of  Providence,  He  made  of  one 
blood  all  nations  of  men,  and  intended  that  they  should  dwell  to- 


THE  ADVANTAGES  OF  EXCHANGE.  1 99 

gather  in  harmony  and  unity.  He  never  intended  that  they 
should  be  completely  isolated  any  more  than  the  members  of  a 
family.  A  common  life  runs  through  all,  and  a  policy  which 
seeks  to  destroy  that  life  is  contrary  to  the  design  of  God  and 
the  best  interests  of  humanity.  We  were  created  dependent  upon 
one  another,  and  it  is  this  dependence  which  makes  us  sympa- 
thetic, peaceful,  and  eager  to  help  one  another.  To  become  inde- 
pendent means  to  become  proud,  cold,  selfish.  This  should  never 
be.  We  can  never  afford  to  be  independent  of  other  nations,  we 
need  their  civilization  and  they  need  ours. 

What  a  vast  benefit  commerce  has  been  to  the  world ;  but 
commerce  is  wholly  opposed  to  the  protective  policy.  How  it  is 
breakmg  down  jealousy  and  enmity  between  nations  !  how  it  is 
drawing  the  nations  together  and  working  for  universal  peace ! 
It  is  linking  the  whole  world  in  one  great  brotherhood  and  put- 
ting off  forever  the  day  of  war  and  bloodshed.  Shall  the  design 
of  God  be  infringed  upon  ?  Shall  the  world's  peace  be  de- 
stroyed ?  No,  never.  So  long  as  we  have  voice  or  pen  it  shall 
support  that  policy  which,  we  believe,  originated  in  heaven,  which 
tends  to  destroy  human  selfishness  and  pride,  which  brings  the 
nations  of  the  earth  together  and  makes  them  one. 

Let  us  revert  to  the  principle  with  which  we  set  out,  that  as  in 
individual,  so  in  national  exchanges,  they  are  made  because  both 
sides  must  gain.  What  a  grand  discovery!  "It  created  a  revolu- 
tion in  public  opinion  and  in  national  policy,  which  directly 
affects  the  happiness  of  every  human  being,  and  forever  removed 
a  perennial  source  of  war  from  the  world." 

We  do  not  propose  to  set  aside  that  beautiful  trutli.  We  sliall 
recognize  it  and  enforce  it,  that  the  selfishness  of  men  may  dimin- 
ish and  their  good  increase. 


XVI. 


TAXATION 


Taxation  is  one  of  the  most  important  functions  of  Government. 
The  four  cardinal  rules  to  be  observed  in  assessing  and  collecting 
taxes  laid  down  by  Adam  Smith,  have  become  classic  from  their 
frequent  repetition,  and  we  cannot  do  better  than  state  them  here. 

"  I -—The  subject  of  every  State  ought  to  contribute  to  the  sup- 
port of  the  Government,  as  nearly  as  possible  in  proportion  to  their 
respective  abilities;  that  is,  in  proportion  to  the  revenue  which 
they  respectively  enjoy  under  the  protection  of  the  State.  In  the 
observation  or  neglect  of  this  maxim  consists  what  is  called  quaUty 
or  inequality  of  taxation. 

"  2. — The  tax  which  each  individual  is  bound  to  pay  ought  to 
be  certain,  and  not  arbitrary.  The  time  of  payment,  the  manner 
of  payment,  the  quantity  to  be  paid,  ought  all  to  be  clear  and 
plain  to  the  contributor,  and  to  every  other   person. 

"  3- — Every  tax  ought  to  be  levied  at  the  time,  or  in  the 
manner  in  which  it  is  most  likely  to  be  convenient  for  the  con- 
tributor to  pay  it. 

"4- — Every  tax  ought  to  be  so  contrived  as  both  to  take  out 
and  keep  out  of  the  pockets  of  the  people  as  litde  as  possible 
over  and  above  what  it  brings  into  the  public  treasury  of  the 
State." 


TAXATION.  201 

It  was  following  a  natural  order  to  place  the  rule  relating  to 
equality  of  taxation  first,  because  it  is  preeminent  in  importance. 
We  need  repeat  no  commonplaces  upon  the  necessity  of  observ- 
ing the  rule;  the  necessity  is  deeply  graven  in  the  popular  mind, 
and  no  words  can  deepen  or  widen  that  feeling.  What  we  pro- 
pose to  consider  are  the  glaring  violations  of  this  rule. 

Double  taxation  is  unequal  taxation.  From  this  conclusion 
there  is  no  escape.  If  A  pays  a  tax  upon  a  piece  of  property 
once,  and  B  pays  a  tax  upon  a  similar  piece  twice,  the  latter  is 
doubly  and  unjustly  taxed.  No  matter  in  what  form  ^  the  tax  is 
laid,  if  the  specific  kind  of  property  is  taxed  twice  it  is  doubly 
and  wrongfully  taxed.  Most  shocking  instances  of  double  taxa- 
tion have  been  reported. 

The  most  common  method  of  taxing  property  twice  is  in  assess- 
ing bonds,  notes,  and  other  evidences  of  property.  We  will  begin 
with  the  taxation  of  currency.* 

The  currency  of  the  country  consists  principally  of  the  circula- 
tion of  the  National  banks  which  is  taxed  by  the  National  Gov- 
ernment. After  such  a  tax  is  laid,  a  subsequent  taxing  of  it  in 
the  form  of  money  at  interest  operates,  in  most  cases,  as  double 
taxation.  The  first  tax  upon  the  circulation  is  well  enough,  but 
that  ought  to  be  the  end  of  taxing  this  form  of  property,  as  we 
shall  proceed  to  show. 

Smith,  the  inevitable  illustration,  has  $  100,000  of  this  currency. 
He  loans  $  50,000  to  Jones,  secured  by  mortgage  upon  his  real 
estate  which  is  taxed  for  its  full  value.  Its  worth,  we  will  say,  is 
$75,000.  Two-thirds  of  it  is  owned  virtually  by  Smith,  and  one- 
third  by  Jones.  But  Smith  must  pay  a  tax  upon  his  $  50,000  at 
interest,  and  Jones  pays  a  tax  upon  $  75,000  of  real  estate. 

*  See   very  interesting   article    in    Overland  Monthly,  vol.  ii,  p.  351,    entitled.    "  Must,  Can 
and  Should  Money  be  Taxed  ?  " 


202  TAXATION. 

Is  not  this  double  taxation  ?  Is  not  Jones  taxed  upon  what  he 
does  not  actually  own  to  the  extent  of  $  50,000  ? 

How,  then,  shall  these  two  parties  be  taxed  ?  Jones  for  the 
full  value  of  the  real  estate;  for  we  believe  that  taxes  should  be 
laid  upon  property  rather  than  upon  individuals,  because  there  is 
a  greater  certainty  in  collecting  them.  Any  person  who  is  in  pos- 
session of  property,  and  is  the  nominal  owner,  ought  to  be  taxed 
for  it;  and  if  he  is  not  the  actual  owner  for  any  or  only  a  part, 
then  he  can  adjust  the  payment  of  the  tax  with  the  real  parties 
in  interest.  This  is  by  far  the  preferable  rule,  for  it  will  avoid  a 
vast  amount  of  deception,  and  the  State  will  collect  a  larger  and 
juster  revenue. 

In  accordance  with  this  rule,  Jones  should  pay  a  tax  upon 
$75,000.  Being  obhged  to  pay  it,  he  will  not  give  Smith  so 
much  for  the  use  of  his  money,  or  he  will  divide  the  tax  with 
him  according  to  some  agreement  made  between  themselves. 

If  Jones  pays  a  tax  upon  that  sum,  the  State  ought  not  to  tax 
Smith  for  $  50,000  loaned  to  Jones,  because  it  is  represented  by 
real  estate.  It  is  there.  Smith  has  transferred  it  to  Jones,  who 
is  taxed  for  it  in  the  form  of  real  estate.  Smith,  we  will  assume, 
was  taxed  for  it  before  he  loaned  the  money  to  Jones,  as  cash 
on  hand.  He  lets  Jones  have  it,  who  puts  it  into  his  list.  Is  it 
not  clear,  therefore,  to  tax  Smith  for  what  he  has  parted  with, 
for  what  Jones  is  taxed,  is  double  taxation  ?  The  bank  issuing 
the  $  100,000  of  notes  which  Smith  has,  was  taxed  for  them. 
Smith  was  taxed  for  them,  so  long  as  they  were  his;  when  he  let 
Jones  have  them,  the  latter  was  taxed  upon  his  real  estate  which 
he  received  in  exchange,  and  that  is  a  sufficient  taxing  of  all 
parties. 

Let  us  follow  the  other  $50,000  of  Smith's  currency.    He  loans 


TAXATION.  203 

$25,000  of  it  to  Brown,  who  is  a  merchant.  He  expends  the 
money  in  the  purchase  of  goods.  He  is  taxed  for  the  full  value 
of  them.  Is  there  any  justice  in  taxing  Smith  for  the  money 
loaned  to  B  ?     Certainly  not ;  it  is  double  taxation. 

Smith  loans  $25,000  to  King,  a  manufacturer,  who  expends  it 
in  the  purchase  of  cotton  for  his  mill,  for  wages,  or  keeps  it  as 
cash  on  hand.  In  the  first  case,  King  pays  a  tax  upon  his  raw 
stock;  if  he  has  expended  it  for  wages,  he  pays  a  tax  on  his 
manufactured  product  unsold;  or,  in  the  third  place,  he  is  taxed 
upon  his  cash.  In  either  of  these  three  cases,  if  Smith  pays  a 
tax  besides,  the  same  property  is  taxed  twice.  If  King  has  not 
put  Smith's  money  into  stock,  nor  manufactured  goods  on  hand, 
nor  has  it  as  cash  in  the  drawer  or  bank,  either  he  has  purchased 
other  property  upon  which  he  pays  a  tax,  or  he  has  loaned  it  to 
some  one  else  who  pays  a  tax  thereon,  or  he  has  wasted  or  lost 
it  in  his  business.  If  King  has  re-invested  it,  and  pays  a  tax 
upon  such  an  investment,  there  is  no  justice  in  taxing  Smith  for 
the  same  property.  If  King  has  loaned  it  to  another  who  pays  a 
tax  thereon,  that  is  the  same  thing;  if  King  has  lost  or  squan- 
dered it,  surely  neither  he  nor  Smith  should  pay  a  tax  for  what 
neither  one  has. 

All  money  is  loaned  in  these  ways.  We  believe  these  instances 
cover  nearly  all  cases.  It  is  clear,  therefore,  that  there  is  no  jus- 
tice in  taxing  currency  after  it  has  been  taxed  once. 

Another  way  of  stating  the  same  conclusion  is  this:  As  all 
indebtedness  is  equal  to  the  money  loaned,  the  taxation  of  more 
than  either  indebtedness  or  money  is  double  taxation.  The  State 
is  constantly  transgressing  this  line,  taxing  both. 

The  taxation  of  bonds  falls  in  the  same  category  as  mortgages, 
except    niunici[)al    bonds.     They   represent,  in    every   instance,   real 


204  TAXATION. 

or  personal  property  upon  which  taxes  are  paid.  A  railroad  cor- 
poration, for  example,  is  taxed  for  all  its  property.  Where  is  the 
justice  in  taxing  its  bonds  ?  Such  bonds  are  similar  to  individual 
mortgages,  which  we  have  seen  ought  not  to  be  taxed.* 

It  may  be  said,  this  question  is  one  purely  of  the  proper 
assessment  of  the  tax;  instead  of  having  A  pay  upon  the  property 
taxed,  we  require  payment  to  be  made  of  B.  True,  this  is  one 
of  the  questions  involved,  and  it  is  a  most  important  one.  We 
insist  that  only  actual,  tangible  property,  and  franchises  should  be 
taxed,  in  the  possession  of  the  holder  if  he  has  a  nominal  interest 
therein,  although  he  may  not  be  the  actual  holder.  This  rule  has 
the  best  of  reasons  to  support  it.  First,  it  will  avoid  double  taxa- 
tion. There  is  no  danger  of  taxing  a  piece  of  land  twice  through 
mistake.  It  is  sometimes  done,  but  done  openly,  knowingly. 
Secondly,  it  will  prevent  the  commission  of  fraud.  Now,  the 
owners  of  bonds,  notes,  and  the  like  do  an  enormous  amount  of 
lying  in  denying  their  ownership  of  such  property.  Only  a  very 
small  amount  of  such  property  is  taxed.  Probably  not  one-twen- 
tieth of  the  bonds  in  the  United  States  which  are  taxable  are 
put  into  the  lists.  PeojDle  lie  and  deceive,  or  in  some  way  evade 
paying  taxes  upon  them.  If  actual  property  were  taxed,  instead 
of  the  evidences  of  it,  there  would  be  no  chance  of  practicing 
deception.  Real  estate,  goods,  and  merchandise  cannot  be  put 
out  of  existence  by  words.  They  exist.  How  much  better,  there- 
fore, to  tax  them,  and  thus  prevent  the  lying  and  deception  which 
is  universally  practiced  under  the  system  now  prevailing !  * 

,  *  For  illustration  of  the  failure  to  assess  and  collect  taxes  upon  personal  property  see  Reports 
of  Commissioners  to  Revise  the  Laws  for  the  Assessment  and  Collection  of  Taxes  in  the  State 
of  New  York.     1871-2. 

"  It  has  been  made  manifest  to  every  revenue  board  that  convened  at  Harrisburg,  from  Feb- 
ruary, 184s,  to  the  present  time,  that  the  returns  of  personalty,  and,  especially,  of  moneys  at 
ir.terest  and  stocks,  were  never  a  tenth  of  tlien-  actual  amounts  or  values."  Report  of  Commis- 
sioners to  City  of  Philadelphia  to  Revise  the  Laws  Relating  to  Taxation.     P.  9. 


TAXATION.  205 

Suppose  this  simple  rule  were  adopted,  how  far  and  wide-reach- 
ing it  would  be!  It  would  cover  all  mortgages  and  bonds  except 
those  issued  by  municipalities.  It  would  cover  all  stocks  except 
those  of  money  associations,  which  should  be  taxed  upon  their 
franchises — a  thing  that  cannot  be  lost  out  of  sight  by  words.  It 
would  cover  all  money  at  interest,  inasmuch  as  this  is  loaned  to 
persons  who  have  invested  it  in  goods  and  the  like,  upon  which 
a  tax  is  paid.  The  only  species  of  property  not  covered  by  the 
rule  is  simply  the  money  which  a  person  may  have  on  hand; 
and  as  this  cannot  be  in  value  above  the  whole  amount  of  cur- 
rency issued  upon  which  a  tax  has  been  paid  by  the  banks  issu- 
ing it,  there  is  no  reason  for  taxing  it  a  second  time. 

Were  this  principle  of  taxing  property  adopted,  it  would  be 
more  just  than  any  other,  because  the  tax  would  be  paid  where 
protection  to  the  property  is  rendered.  The  ground  for  taxing 
property  is  protection  given;  but  what  protection  does  the  State 
of  New  York,  for  instance,  exercise  over  property  situated  in 
MASfjACHUSETTS  ?  A  livcs  in  Albany,  and  he  holds  a  mortgage 
upon  a  piece  of  property  located  in  the  latter  State.  A  tax  is 
paid  upon  the  property  by  B.  The  property  is  protected  by 
Massachusetts.  True  A  and  B  are  the  owners,  but  the  prop- 
erty is  not  in  Albany,  hence  it  ought  not  to  be  taxed  there.  If 
A's  deed  were  stolen,  the  State  of  New  York  might  assist  him 
in  punishing  the  offender,  but  the  property,  of  which  the  deed  is 
merely  the  evidence,  is  in  Massachusetts,  is  protected  by  the 
laws  there,  and  A  is  indebted  to  that  State,  not  New  York,  for 
the  protection  of  his  property.  The  same  is  true  of  railroad 
bonds  and  stocks.  There  is  no  justice  in  taxing  the  evidence  of 
property  in  a  place  away  from  where  it  is,  because  no  protection 
is  given. 


2o6  TAXATION. 

It  will  be  said  that  if  the  evidences  of  property  are  not  taxed, 
great  hardship  may  arise.  The  following  case  may  be  supposed. 
A  man  lives  in  Boston  owning  one  hundred  thousand  dollars  of 
New  York  Central  Railroad  bonds.  He  pays  no  taxes  where  he 
lives,  but  enjoys  all  the  privileges  of  the  city  and  educates  his 
children  at  the  public  expense.  It  is  asked,  is  this  right?  To  this 
question  two  answers  may  be  given.  First,  his  bonds  are  the 
memoranda  of  property  existing  in  New  York,  where  he  must  pay 
a  tax  to  benefit  other  people  and  educate  their  children.  Secondly, 
every  individual  pays  a  personal  tax  for  the  benefits  accruing  to 
the  person,  and  this  should  cover  a  tax  to  support  public  educa- 
tion. 

A  lives  in  Boston,  but  owns  a  farm  in  Wisconsin,  where  it  is 
taxed.  All  admit  that  this  tax  is  correctly  laid.  A  owns  bonds 
or  stock  in  a  Wisconsin  railroad,  which  are  taxed  there,  and  yet 
he  has  to  pay  another  tax  upon  his  stock  or  bonds  in  Boston.  Is 
not  the  latter  tax  as  unjust  as  if  his  farm  in  Wisconsin  were  also 
taxed  at  his  place  of  residence  ? 

Were  this  rule  adopted,  of  taxing  visible,  actual  property,  and 
franchises,  all  property  would  be  taxed  and  more  equally  than 
now.  Our  present  mode  is  barbarous  in  the  extreme,  leading  to 
a  vast  deal  of  deception  and  lying,  and  enabling  thousands  who 
ought  to  pay  taxes  to  escape  with  paying  none.  This  subject 
merits  the  serious  attention  of  economists  and  legislators,  and 
provision  ought  to  be  inserted  in  every  constitution  prohibiting 
double  taxation.  For  this  end  all  should  work,  for  with  this  to 
rest  upon  the  present  absurd  and  unjust  system  of  taxation  gener- 
ally prevailing  throughout  our  country  can  be  broken  down,  and 
another  formed,  having  its  origin  in  equity  and  justice. 


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